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:

1700

Revenues-East $ 1,115,500 Revenues-West 1,368,400 Revenues-Central 2,360,700 Operating Expenses-East 706,900 Operating Expenses-West 814,400 Operating Expenses-Central 1,427,600 Corporate Expenses-Shareholder Relations 169,700 Corporate Expenses-Customer Support 548,600 Corporate Expenses-Legal 284,200 General Corporate Officer's Salaries 374,700 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 Operating expenses Income from operations before service department charges $ Less service department charges: Customer support Legal Subtotal Income from operations 2. What is the profit margin of each division? Round to one decimal place Division East Division West Division Central Division Identify the most successful division according to the profit margin Profit Margin Select

Explanation / Answer

1,2

Refer Summary and working below for service department cost

Central division is most profitable

3) option c can be included , Calculating residual income as it will show excess earnings in divison over and above its minimal return on investment

East West Central Revenues 1115500 1368400 2360700 Opertaing expenses 706900 814400 1427600 Income from operations before service department charges 408600 554000 933100 Less: Service department charges Customer support 137800 163800 247000 Legal 69600 116000 98600 Subtotal 207400 279800 345600 Income from operations 201200 274200 587500 % profit Margin 18% 20% 25% ( Income from Operation / Revenues) Service Department Expense Cost Total Cost driver allocation rate Customer support 548600 21100 26 Legal 284200 4900 58 East west Central Total Number of customers 5300 6300 9500 21100 Allocation of Customer support at $ 26 per customer 137800 163800 247000 548600 Number of hours billed 1200 2000 1700 4900 Allocation of legal expenses at $ 58 per hour billed 69600 116000 98600 284200

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