Profit Center Responsibility R

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 $1,030,800
Revenues—S Region 1,192,300
Revenues—W Region 2,190,000
Operating Expenses—N Region 653,200
Operating Expenses—S Region 709,600
Operating Expenses—W Region 1,324,400
Corporate Expenses—Dispatching 567,500
Corporate Expenses—Equipment Management 188,600
Corporate Expenses—Treasurer’s 156,800
General Corporate Officers’ Salaries 346,200

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 5,700   6,800   10,200  
Number of railroad cars in inventory 1,200   1,800   1,600  

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      
Equipment Management      
Total service department charges      
Income from operations      

2.  What is the profit margin of each division? Round to one decimal place.

Region Profit Margin
North Region fill in the blank 
South Region fill in the blank 
West Region fill in the blank 

Identify the most successful region according to the profit margin.
 

3.  What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions?

  1. The method used to evaluate the performance of the divisions should be reevaluated.
  2. A better divisional performance measure would be the rate of return on investment (income from operations divided by divisional assets).
  3. A better divisional performance measure would be the residual income (income from operations less a minimal return on divisional assets).
  4. None of these choices would be included.
  5. All of these choices (a, b & c) would be included.

 

Profit Center Responsibility R

Profit Center Responsibility Reporting

XSport Sporting Goods Co. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of December 31, 20Y9, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports Division $34,650,000
Sales—Summer Sports Division 38,280,000
Cost of Goods Sold—Winter Sports Division 20,790,000
Cost of Goods Sold—Summer Sports Division 22,110,000
Sales Expense—Winter Sports Division 5,940,000
Sales Expense—Summer Sports Division 5,280,000
Administrative Expense—Winter Sports Division 3,465,000
Administrative Expense—Summer Sports Division 3,399,000
Advertising Expense 946,000
Transportation Expense 476,800
Accounts Receivable Collection Expense 228,800
Warehouse Expense 3,300,000

The bases to be used in allocating expenses, together with other essential information, are as follows:

  1. Advertising expense—incurred at headquarters, charged back to divisions on the basis of usage: Winter Sports Division, $444,000; Summer Sports Division, $502,000.
  2. Transportation expense—charged back to divisions at a charge rate of $16 per bill of lading: Winter Sports Division, 14,200 bills of lading; Summer Sports Division, 15,600 bills of lading.
  3. Accounts receivable collection expense—incurred at headquarters, charged back to divisions at a charge rate of $8 per invoice: Winter Sports Division, 13,200 sales invoices; Summer Sports Division, 15,400 sales invoices.
  4. Warehouse expense—charged back to divisions on the basis of floor space used in storing division products: Winter Sports Division, 180,000 square feet; Summer Sports Division, 220,000 square feet.

Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Do not round your interim calculations.

XSport Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y9
  Winter Sports Division Summer Sports Division
Sales $fill in the blank ef6b8afeb032ffb_1 $fill in the blank ef6b8afeb032ffb_2
Cost of goods sold fill in the blank ef6b8afeb032ffb_3 fill in the blank ef6b8afeb032ffb_4
Gross profit $fill in the blank ef6b8afeb032ffb_5 $fill in the blank ef6b8afeb032ffb_6
Divisional selling and administrative expenses:    
Divisional selling expenses $fill in the blank ef6b8afeb032ffb_7 $fill in the blank ef6b8afeb032ffb_8
Divisional administrative expenses fill in the blank ef6b8afeb032ffb_9 fill in the blank ef6b8afeb032ffb_10
Total divisional selling and administrative expenses $fill in the blank ef6b8afeb032ffb_11 $fill in the blank ef6b8afeb032ffb_12
Income from operations before service department charges $fill in the blank ef6b8afeb032ffb_13 $fill in the blank ef6b8afeb032ffb_14
Service department charges:    
Advertising expense $fill in the blank ef6b8afeb032ffb_15 $fill in the blank ef6b8afeb032ffb_16
Transportation expense fill in the blank ef6b8afeb032ffb_17 fill in the blank ef6b8afeb032ffb_18
Accounts receivable collection expense fill in the blank ef6b8afeb032ffb_19 fill in the blank ef6b8afeb032ffb_20
Warehouse expense fill in the blank ef6b8afeb032ffb_21 fill in the blank ef6b8afeb032ffb_22
Total service department charges $fill in the blank ef6b8afeb032ffb_23 $fill in the blank ef6b8afeb032ffb_24
Income from operations $fill in the blank ef6b8afeb032ffb_25 $fill in the blank ef6b8afeb032ffb_26

Provide supporting schedules for determining service department charges. If required, round per unit amounts to two decimal places and final answers to the nearest dollar.

XSport Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y9
  Winter Sports Division Summer Sports Division Total
Advertising expense $fill in the blank 3b8b27f9cfff03f_1 $fill in the blank 3b8b27f9cfff03f_2 $fill in the blank 3b8b27f9cfff03f_3
Transportation rate per bill of lading $fill in the blank 3b8b27f9cfff03f_4 $fill in the blank 3b8b27f9cfff03f_5  
Number of bills of lading fill in the blank 3b8b27f9cfff03f_6 fill in the blank 3b8b27f9cfff03f_7  
Transportation expense $fill in the blank 3b8b27f9cfff03f_8 $fill in the blank 3b8b27f9cfff03f_9 $fill in the blank 3b8b27f9cfff03f_10
Accounts receivable collection rate $fill in the blank 3b8b27f9cfff03f_11 $fill in the blank 3b8b27f9cfff03f_12  
Number of sales invoices fill in the blank 3b8b27f9cfff03f_13 fill in the blank 3b8b27f9cfff03f_14  
Accounts receivable collection expense $fill in the blank 3b8b27f9cfff03f_15 $fill in the blank 3b8b27f9cfff03f_16 $fill in the blank 3b8b27f9cfff03f_17
Warehouse rate per sq. ft. $fill in the blank 3b8b27f9cfff03f_18 $fill in the blank 3b8b27f9cfff03f_19  
Number of square feet fill in the blank 3b8b27f9cfff03f_20 fill in the blank 3b8b27f9cfff03f_21  
Warehouse expense $fill in the blank 3b8b27f9cfff03f_22 $fill in the blank 3b8b27f9cfff03f_23 $fill in the blank 3b8b27f9cfff03f_24

Profit Center Responsibility R

Profit Center Responsibility Reporting

Glades Sporting Goods Co. operates two divisions—the Winter Sports Division and the Summer Sports Division. The following income and expense accounts were provided from the trial balance as of December 31, 20Y8, the end of the fiscal year, after all adjustments, including those for inventories, were recorded and posted:

Sales—Winter Sports Division $24,255,000
Sales—Summer Sports Division 26,796,000
Cost of Goods Sold—Winter Sports Division 14,553,000
Cost of Goods Sold—Summer Sports Division 15,477,000
Sales Expense—Winter Sports Division 4,158,000
Sales Expense—Summer Sports Division 3,696,000
Administrative Expense—Winter Sports Division 2,425,500
Administrative Expense—Summer Sports Division 2,379,300
Advertising Expense 1,037,000
Transportation Expense 522,000
Accounts Receivable Collection Expense 250,200
Warehouse Expense 2,310,000

The bases to be used in allocating expenses, together with other essential information, are as follows:

  1. Advertising expense—incurred at headquarters, allocated to divisions on the basis of usage: Winter Sports Division, $487,000; Summer Sports Division, $550,000.
  2. Transportation expense—allocated to divisions at an allocation rate of $18 per bill of lading: Winter Sports Division, 13,800 bills of lading; Summer Sports Division, 15,200 bills of lading.
  3. Accounts receivable collection expense—incurred at headquarters, allocated to divisions at an allocation rate of $9 per invoice: Winter Sports Division, 12,800 sales invoices; Summer Sports Division, 15,000 sales invoices.
  4. Warehouse expense—allocated to divisions on the basis of floor space used in storing division products: Winter Sports Division, 120,000 square feet; Summer Sports Division, 160,000 square feet.

Prepare a divisional income statement with two column headings: Winter Sports Division and Summer Sports Division. Do not round your interim calculations.

Glades Sporting Goods Co.
Divisional Income Statements
For the Year Ended December 31, 20Y8
  Winter Sports
Division
Summer Sports
Division
Sales $fill in the blank 650ae4fb6f9cffc_1 $fill in the blank 650ae4fb6f9cffc_2
Cost of goods sold fill in the blank 650ae4fb6f9cffc_3 fill in the blank 650ae4fb6f9cffc_4
Gross profit $fill in the blank 650ae4fb6f9cffc_5 $fill in the blank 650ae4fb6f9cffc_6
Divisional selling and administrative expenses:    
Divisional selling expenses $fill in the blank 650ae4fb6f9cffc_7 $fill in the blank 650ae4fb6f9cffc_8
Divisional administrative expenses fill in the blank 650ae4fb6f9cffc_9 fill in the blank 650ae4fb6f9cffc_10
Total divisional selling and administrative expenses $fill in the blank 650ae4fb6f9cffc_11 $fill in the blank 650ae4fb6f9cffc_12
Income from operations before service department allocations $fill in the blank 650ae4fb6f9cffc_13 $fill in the blank 650ae4fb6f9cffc_14
Less service department cost allocations:    
Advertising expense $fill in the blank 650ae4fb6f9cffc_15 $fill in the blank 650ae4fb6f9cffc_16
Transportation expense fill in the blank 650ae4fb6f9cffc_17 fill in the blank 650ae4fb6f9cffc_18
Accounts receivable collection expense fill in the blank 650ae4fb6f9cffc_19 fill in the blank 650ae4fb6f9cffc_20
Warehouse expense fill in the blank 650ae4fb6f9cffc_21 fill in the blank 650ae4fb6f9cffc_22
Total $fill in the blank 650ae4fb6f9cffc_23 $fill in the blank 650ae4fb6f9cffc_24
Income from operations $fill in the blank 650ae4fb6f9cffc_25 $fill in the blank 650ae4fb6f9cffc_26

Provide supporting schedules for determining service department cost allocations.. If required, round per unit amounts to two decimal places and final answers to the nearest dollar.

Glades Sporting Goods Co.
Service Department Charges
For the Year Ended December 31, 20Y8
  Winter Sports
Division
Summer Sports
Division
Total
Advertising expense $fill in the blank 2d45aa02403efd2_1 $fill in the blank 2d45aa02403efd2_2 $fill in the blank 2d45aa02403efd2_3
Transportation rate per bill of lading $fill in the blank 2d45aa02403efd2_4 $fill in the blank 2d45aa02403efd2_5  
Number of bills of lading fill in the blank 2d45aa02403efd2_6 fill in the blank 2d45aa02403efd2_7  
Transportation expense $fill in the blank 2d45aa02403efd2_8 $fill in the blank 2d45aa02403efd2_9 $fill in the blank 2d45aa02403efd2_10
Accounts receivable collection rate $fill in the blank 2d45aa02403efd2_11 $fill in the blank 2d45aa02403efd2_12  
Number of sales invoices fill in the blank 2d45aa02403efd2_13 fill in the blank 2d45aa02403efd2_14  
Accounts receivable collection expense $fill in the blank 2d45aa02403efd2_15 $fill in the blank 2d45aa02403efd2_16 $fill in the blank 2d45aa02403efd2_17
Warehouse rate per sq. ft. $fill in the blank 2d45aa02403efd2_18 $fill in the blank 2d45aa02403efd2_19  
Number of square feet fill in the blank 2d45aa02403efd2_20 fill in the blank 2d45aa02403efd2_21  
Warehouse expense $fill in the blank 2d45aa02403efd2_22 $fill in the blank 2d45aa02403efd2_23 $fill in the blank 2d45aa02403efd2_24
 

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