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: Revenues-N Region $1,055,700 Revenues-S Region 1,248,600 Revenues-W Region 2,291,900 Operating Expenses-N Region 669,000 Operating Expenses-s Region 743,100 Operating Expenses-W Region 1,386,000 Corporate Expenses-Dispatching 613,200 Corporate Expenses-Equipment Management 173,900 Corporate Expenses-Treasurer's 160,600 General Corporate Officers' Salaries 354,600 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: North South West Number of scheduled trains Number of railroad cars in inventory 5,500 900 6,600 1,500 9,800 1,300 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. Thomas Railroad Company Divisional Income Statements For the Quarter Ended December 31 North South West Revenues Operating expenses Income from operations before service department charges Service department charges: Dispatching

Answer 1

Thomas Railroad Company - Divisional Income statements for the quarter Ended December 31st I North (6) South (1) West ($) Revenues 1055,700 1,248,600 2,291,900 operating expenses (669,000) (743,000) (1,386,000) to Toveste dom operations bebolela) ter oder 505,500 905900 service dept charges Service dept charges 274.400 Dispatching (Notel) 154,000 184,800 Equipment Management (42,300 70500 | 61,100 Total service dept charge B) 196,300 256,306 335,500 Inuma fecom operation B) 4190,400 $250,200 $570,400 (Note 1)e Calculation of Dispatching charges for Arne Dispatching dept = No of shaduled x Dispatching deptex porse is parch yeep - trains for the - Total no of schoduled Northing 5500 613,200 - 75500+660079800) dinsion → $154,000 ith - 2 6600 x 613,200 (5900+6600 +9800) *184,800 West - 9800 x 613,200 (550076600 +9800) $274,400

Note a: Calculation of equipment management charges! Northe No. of railroads ass ininuentory X Equipment rugl charges Total no. of railroad CN=> 900 x 173.900 cars in inuentory .. (90041500 + 1300) 44 2,300 - Southra 1500 x 173,900 900 +1500 41300) 12222222 = > $70,500 33.900 West 2- → 1300 X (20041800+1300) - - Revenue (18.235.1) loss 700 >$64.100 thRogon - Income from operations, too Profit Margin North Region 420, poco => 188/ South Region > 280, 200 x 100 - 20038% West Region => 570,400 x 100 24.88% 0 2291,900 The most succesful regim accordin is west region with 24.88% profit margin. ③ All the choices of a, b, c. would be included for a better method for evaluating the performance of the divisions by the CEO, 9