Conico Railroad 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: Revenues—East $1,960,000 Revenues—West 2,800,000 Revenues—Central 4,480,000 Operating Expenses—East 1,120,000 Operating Expenses— West 1,890,000 Operating Expenses—Central 2,660,000 Corporate Expenses—Shareholder Relations 420,000 Corporate Expenses—Customer Support 560,000 Corporate Expenses—Legal 627,200 General Corporate Officers' Salaries 1,680,000 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 Shareholder Relations Department and general corporate officers’ salaries are not controllable by division management. 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 a cost driver for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is a cost driver for this work. The following additional information has been gathered: East West Central Number of customer contacts 2,100 3,920 7,980 Number of hours billed 1,040 2,450 2,110 Required: 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central. Conico Railroad Inc. Divisional Income Statements For the Quarter Ended December 31 East West Central Revenues $fill in the blank $fill in the blank $fill in the blank Operating expenses fill in the blank fill in the blank fill in the blank Income from operations before service department allocations $fill in the blank $fill in the blank $fill in the blank Less service department allocations: Customer Support $fill in the blank $fill in the blank $fill in the blank Legal fill in the blank fill in the blank fill in the blank Total service department allocations $fill in the blank $fill in the blank $fill in the blank Income from operations $fill in the blank $fill in the blank $fill in the blank 2. Compute the profit margin. Rounded to nearest whole percent. Division Profit Margin East Region fill in the blank % West Region fill in the blank % Central Region fill in the blank % Identify the most successful region according to the profit margin.

Conico Railroad 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: Revenues—East $1,960,000 Revenues—West 2,800,000 Revenues—Central 4,480,000 Operating Expenses—East 1,120,000 Operating Expenses— West 1,890,000 Operating Expenses—Central 2,660,000 Corporate Expenses—Shareholder Relations 420,000 Corporate Expenses—Customer Support 560,000 Corporate Expenses—Legal 627,200 General Corporate Officers' Salaries 1,680,000 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 Shareholder Relations Department and general corporate officers’ salaries are not controllable by division management. 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 a cost driver for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is a cost driver for this work. The following additional information has been gathered: East West Central Number of customer contacts 2,100 3,920 7,980 Number of hours billed 1,040 2,450 2,110 Required: 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central. Conico Railroad Inc. Divisional Income Statements For the Quarter Ended December 31 East West Central Revenues $fill in the blank $fill in the blank $fill in the blank Operating expenses fill in the blank fill in the blank fill in the blank Income from operations before service department allocations $fill in the blank $fill in the blank $fill in the blank Less service department allocations: Customer Support $fill in the blank $fill in the blank $fill in the blank Legal fill in the blank fill in the blank fill in the blank Total service department allocations $fill in the blank $fill in the blank $fill in the blank Income from operations $fill in the blank $fill in the blank $fill in the blank 2. Compute the profit margin. Rounded to nearest whole percent. Division Profit Margin East Region fill in the blank % West Region fill in the blank % Central Region fill in the blank % Identify the most successful region according to the profit margin.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Profit Center Responsibility Reporting for a Service Company

Revenues—East	$1,960,000
Revenues—West	2,800,000
Revenues—Central	4,480,000
Operating Expenses—East	1,120,000
Operating Expenses— West	1,890,000
Operating Expenses—Central	2,660,000
Corporate Expenses—Shareholder Relations	420,000
Corporate Expenses—Customer Support	560,000
Corporate Expenses—Legal	627,200
General Corporate Officers' Salaries	1,680,000

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 Shareholder Relations Department and general corporate officers’ salaries are not controllable by division management. 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 a cost driver for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is a cost driver for this work. The following additional information has been gathered:

	East	West	Central
Number of customer contacts	2,100		3,920	7,980
Number of hours billed	1,040		2,450	2,110

Required:

1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central.

Conico Railroad Inc.

Divisional Income Statements

For the Quarter Ended December 31

	East	West	Central
Revenues	$fill in the blank	$fill in the blank	$fill in the blank
Operating expenses	fill in the blank	fill in the blank	fill in the blank
Income from operations before service department allocations	$fill in the blank	$fill in the blank	$fill in the blank
Less service department allocations:
Customer Support	$fill in the blank	$fill in the blank	$fill in the blank
Legal	fill in the blank	fill in the blank	fill in the blank
Total service department allocations	$fill in the blank	$fill in the blank	$fill in the blank
Income from operations	$fill in the blank	$fill in the blank	$fill in the blank

2. Compute the profit margin. Rounded to nearest whole percent.

Division	Profit Margin
East Region	fill in the blank %
West Region	fill in the blank %
Central Region	fill in the blank %

Identify the most successful region according to the profit margin.

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