Profit Center Responsibility Reporting for a Service Company Thomas Railroad Com
ID: 2531360 • Letter: P
Question
Profit Center Responsibility Reporting for a Service Company
Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, 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:
The company operates three service departments: the Dispatching Department, the Equipment Management Department, and the Treasurer’s Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. It makes sure the right freight cars are at the right place at the right time. The Treasurer’s Department conducts a variety of services for the company as a whole. The following additional information has been gathered:
Required:
1. Prepare quarterly income statements showing income from operations for the three regions. Use three column headings: North, South, and West. Do not round your interim calculations.
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2. What is the profit margin of each division? Round to one decimal place.
Identify the most successful region according to the profit margin.
West
3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions?
The method used to evaluate the performance of the divisions should be reevaluated.
A better divisional performance measure would be the rate of return on investment (income from operations divided by divisional assets).
A better divisional performance measure would be the residual income (income from operations less a minimal return on divisional assets).
None of these choices would be included.
All of these choices (a, b & c) would be included.
e
Revenues—N Region $1,364,500 Revenues—S Region 1,641,800 Revenues—W Region 2,928,500 Operating Expenses—N Region 864,700 Operating Expenses—S Region 977,100 Operating Expenses—W Region 1,771,000 Corporate Expenses—Dispatching 742,500 Corporate Expenses—Equipment Management 275,600 Corporate Expenses—Treasurer’s 207,500 General Corporate Officers’ Salaries 458,300Explanation / Answer
Working:
2.
Working:
3.
All of these chaices ould be included.
Thomas Railroad Company Divisional Income Statement for the quarter ended December 31 North South West Total Revenues 1364500 1641800 2928500 5934800 Operating Expenses 864700 977100 1771000 3612800 Income from operations before service department charges 499800 664700 1157500 2322000 Service department charges: Dispatching 184800 224400 333300 742500 Equipment management 68900 111300 95400 275600 Total service department charges 253700 335700 428700 1018100 Income from operations 246100 329000 728800 1303900Related Questions
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