Profit center responsibility reporting for a service company Red Line Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CKO) 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 $1,400,000 Revenues-East 2,000,000 Revenues-central 3,200,000 Operating Expenses- East 800,000 operating expenses-west 1.350,000 Operating Expenses - Central 1,900,000 Operating Expenses- shareholder relations 300,000 Corporate Expenses - Customer Support 320,000 Corporate Expenses Legal 500,000 General Corporate Officer's Salaries 1,200,000 The company operates three service departments: Shareholder Relation, Customer Support and Legal The 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 office's 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 belives that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department belives that the number of hours hilled is an activity base for this work. The following additiona information has been gathered: East West Central Number of customer contacts 1500 2800 5700 Number of hours billed 750 1750 1500 Instructions 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East ,West and central. 2. Identify the most successful division according to the profit margin 3. Provide a recommendation to the CEO for a better method for evaluating the performance of the divisions , In your recommendation. identify the major weakness of the present method.
Profit center responsibility reporting for a service company
Red Line Railroad Inc. has three regional divisions organized as profit centers. The chief executive officer (CKO) evaluates divisional performance, using income from operations as a percent of revenues. The following quarterly income and expense accounts were provided from the
| Revenues -East |
$1,400,000 |
| Revenues-East | 2,000,000 |
| Revenues-central | 3,200,000 |
| Operating Expenses- East | 800,000 |
| operating expenses-west | 1.350,000 |
| Operating Expenses - Central | 1,900,000 |
| Operating Expenses- shareholder relations | 300,000 |
| Corporate Expenses - Customer Support | 320,000 |
| Corporate Expenses Legal | 500,000 |
| General Corporate Officer's Salaries | 1,200,000 |
The company operates three service departments: Shareholder Relation, Customer Support and Legal The 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 office's 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 belives that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department belives that the number of hours hilled is an activity base for this work. The following additiona information has been gathered:
| East | West | Central | |
| Number of customer contacts | 1500 | 2800 | 5700 |
| Number of hours billed | 750 | 1750 | 1500 |
Instructions
1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East ,West and central.
2. Identify the most successful division according to the profit margin
3. Provide a recommendation to the CEO for a better method for evaluating the performance of the divisions , In your recommendation. identify the major weakness of the present method.
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