Johnson Products Inc. has three regional divisions organized as profit centers.

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:

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:

Required:

1. 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

Correct 8 of Item 1

Correct 9 of Item 1

Correct 10 of Item 1

Operating expenses

Correct 12 of Item 1

Correct 13 of Item 1

Correct 14 of Item 1

Income from operations before service department charges

Correct 16 of Item 1

Correct 17 of Item 1

Correct 18 of Item 1

Less service department charges:

Customer support

Correct 21 of Item 1

Correct 22 of Item 1

Correct 23 of Item 1

Legal

Correct 25 of Item 1

Correct 26 of Item 1

Correct 27 of Item 1

Subtotal

Correct 29 of Item 1

Correct 30 of Item 1

Correct 31 of Item 1

Income from operations

Correct 33 of Item 1

Correct 34 of Item 1

Correct 35 of Item 1

. What is the profit margin of each division? Round to one decimal place.

Revenues-East $ 1,171,400 Revenues-West 1,400,700 Revenues-Central 2,528,700 Operating Expenses-East 742,300 Operating Expenses-West 833,600 Operating Expenses-Central 1,529,200 Corporate Expenses-Shareholder Relations 178,200 Corporate Expenses-Customer Support 630,400 Corporate Expenses-Legal 244,000 General Corporate Officer's Salaries 393,400

Explanation / Answer

Answer:

1) Quarterly Income Statement Division Wise

2) Profit Margin of Each Division = Income From Operation / Revenues x 100

Notes

1) Service Departments Charges --- Cost of General Corporate Officer's Salaries & Corporate Expenses-Legal are distributed to the divisions on the basis of Number of hours billed under each department..

2) Charges related to Service Departments -- Corporate Expenses-Shareholder Relations & Corporate Expenses-Customer Support are distributed to each divisions on the basis of Number of customer contacts..

Johnson Products Inc. Divisional Income Statements For the Quarter Ended December 31, 2014 Particulars East West Central Revenues $1,171,400 $1,400,700 $2,528,700 Operating expenses $742,300 $833,600 $1,529,200 Income from operations before service department charges $429,100 $567,100 $999,500 Less service department charges: Customer support & Corporate Expenses Share Holder's Realtions (Note 2) $201,124 $242,170 $365,307 Legal & General Corporate Officer's Salaries (Note 1) $159,350 $254,960 $223,090 Subtotal $360,474 $497,130 $588,397 Income from operations $68,626 $69,970 $411,103

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