Profit Center Responsibility Reporting for a Service Company Thomas Railroad Com

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 Revenues-S Region Revenues-W Region Operating Expenses-N Region perating Expenses-S Region Operating Expenses-W Region Corporate Expenses-Dispatching Corporate Expenses-Equipment Management Corporate Expenses Treasurer's General Corporate Officers Salaries 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: $878,800 1,050,500 1,884,600 556,900 625,200 1,139,700 453,200 200,900 133,700 295,200 North South West 5,200 6,200 ,200 1,000 1,600 1.500 Number of scheduled trains Number of railroad cars in inventory 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 Total service department charges Income from operations 2. What is the profit margin of each division? Round to one decimal place Region North Region South Region West Region Profit Margin

Explanation / Answer

Solution (1) - Calculation of Quarterly Income of each Division

$114400

(5200/20600*$453200)

$136400

(6200/20600*$453200)

$202400

(9200/20600*$453200)

$49000

(1000/4100*$200900)

$78400

(1600/4100*$200900)

$73500

(1500/4100*$200900)

Solution (2) - Calculation of Profit Margin of each division

18.04%

($158500/$878800*100)

20.04%

($210500/1050500*100)

24.89%

($469000/1884600*100)

Particulars North South West Revenue $878800 $1050500 $1884600 Operating Expenses $556900 $625200 $1139700 Income from operation before service departmental charges (A) $321900 $425300 $744900 Service Departmental charges : Despatching (Total schedule = 5200+6200+9200) = 20600

$114400

(5200/20600*$453200)

$136400

(6200/20600*$453200)

$202400

(9200/20600*$453200)

Equipment Management (Total railroads cars = 1000+1600+1500) = 4100

$49000

(1000/4100*$200900)

$78400

(1600/4100*$200900)

$73500

(1500/4100*$200900)

Total Service Departmental charges (B) $163400 $214800 $275900 Income from operations (A-B) $158500 $210500 $469000

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