Johnson Products Inc. has three regional divisions organized as profit centers.
ID: 2457465 • Letter: J
Question
Johnson Products Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31, 2014: Revenues-East $ 1,094,500 Revenues-West 1,261,700 Revenues-Central 2,369,100 Operating Expenses-East 693,600 Operating Expenses-West 750,900 Operating Expenses-Central 1,432,700 Corporate Expenses-Shareholder Relations 166,500 Corporate Expenses-Customer Support 633,500 Corporate Expenses-Legal 174,800 General Corporate Officer's Salaries 367,600 The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company's point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered: East West Central Number of customer contacts 4,500 5,400 8,200 Number of hours billed 1,000 1,500 1,300 Required:
. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central.
Johnson Products Inc.
Divisional Income Statements
For the Quarter Ended December 31, 2014
East
West
Central
Revenues
$
$
$
Operating expenses
Income from operations before service department charges
$
$
$
Less service department charges:
Customer support
$
$
$
Legal
Subtotal
$
$
$
Income from operations
$
$
$
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1. Determine the customer contact rate by dividing service cost by output. For each division's customer support, multiply the customer contact rate by the number of customer contacts. Repeat this process for the other service department charges. Subtract the service department charges for a division from that division's income from operations before such charges.
Learning Objective 3.
2. What is the profit margin of each division? Round to one decimal place.
. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central.
Johnson Products Inc.
Divisional Income Statements
For the Quarter Ended December 31, 2014
East
West
Central
Revenues
$
$
$
Operating expenses
Income from operations before service department charges
$
$
$
Less service department charges:
Customer support
$
$
$
Legal
Subtotal
$
$
$
Income from operations
$
$
$
Explanation / Answer
Johnson products Inc.
Quarterly Income statement for three division :( in $)
East West Central
Revenues 1094500 1261700 2369100
Operating expenses 693600 750900 1432700
Income from operation 400900 510800 936400
Department charges
customer Support 157500 189000 287000
Legal 46000 69000 59800
Income from operation 197400 252800 589600
Note:- Total Customer support expenses = $633500
East = 633500 * 4500 / 18100 = 157500
West = 633500 * 5400 / 18100 = 189000
Central = 633500 * 8200/18100 = 287000
Total Legal Expenses = $174800
East = 174800 * 1000 / 3800 =46000
West = 174800 * 1500/3800 = 69000
Central = 174800*1300/3800=59800
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