Cross Country Transport Companyorganizes its three divisions, the Southeast, Eas
ID: 2433955 • Letter: C
Question
Cross Country Transport Companyorganizes its three divisions, the Southeast, East, and Southregions, as profit centers. The chief executive officer (CEO)evaluates divisional performance, using income from operations as apercent of revenues. The following quarterly income andexpense accounts were provided from the trial balance as ofDecember 31, 2008:
Revenues-SERegion $1,740,000
Revenues ERegion 2,820,000
Revenues-SRegion 2,340,000
Operating Expenses-SERegion 1,134,400
Operating Expenses-ERegion 2,097,300
Operating Expense-SRegion 1,721,700
CorporateExpenses-Dispatching 500,000
CorporateExpenses-Equipment 525,000
Corporate expenses-Treasurer’s 375,000
General Corporate Officers’Salaries 710,000
The company operates three servicedepartments: the dispatching Department, the equipment managementdepartment, and the Treasurer’s department. Thedispatching department manages the scheduling and releasing ofcompleted trains. The Equipment management dept. manages therailroad cars inventories. It makes sure the right freightcars are at the right place at the right time. Thetreasurer’s dept. conducts a variety of services for thecompany as a whole. The following additional information hasbeen gathered:
Southeast East South
Number of scheduledtrains 400 680 520
Number of railroad cars ininventory 4,800 6,400 5,600
INSTRUCTIONS
Explanation / Answer
Quarterly Income Statement South EastRegion SouthRegion East Region Revenues 1,740,000 2,820,000 2,340,000 OperatingExpenses 1,134,400 2,097,300 1,721,700 NetIncome 605,600 722,700 618,300 GrossProfit 34.80% 25.63% 26.42% South East Region has the best performance. In my view, gross profit is the important indicator but not theonly one. We can compare the revenue generate per railroad cars andthe number of schedule of trains Regions South East region South region East region Revenue generate per railroad car $362.5/car $440.63/car $417.86/car From the data, it show that the usage of inventory in south regionand east region is more effective than the south east region.Moreover, from the number of schedule of trains, south east regiongot the less schedule. When the output is small, it is more easierto control the cost. That the reason of gross profit of south eastregion is greater than others under the same condition. If only look at the gross profit, it might not giving the fulldetails about the performance of 3 regions. CEO should compare theeffectiveness of using their inventory to generate the revenue andthe cost control between 3 regions.
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