Profit Center Responsibility Reporting A-One Freight Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31, 20Y3. Revenues—Air Division $ 1,086,300 Revenues—Rail Division 1,307,900 Revenues—Truck Division 2,315,700 Operating Expenses—Air Division 688,400 Operating Expenses—Rail Division 778,400 Operating Expenses—Truck Division 1,400,400 Corporate Expenses—Shareholder Relations 165,200 Corporate Expenses—Customer Support 546,000 Corporate Expenses—Legal 262,400 General Corporate Officers’ Salaries 364,900 The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered: Air Rail Truck Number of customer contacts 4,600 5,500 8,100 Number of hours billed 1,000 1,600 1,500 Division management does not control activities related to the shareholder relations department and general corporate officers’ salaries. Required: a. Prepare quarterly income statements showing operating income for the three divisions. Use three column headings: Air, Rail, and Truck. A-One Freight Inc. Divisional Income Statements For the Quarter Ended December 31, 20Y3 Air Rail Truck $ $ $ $ $ $ Less service department charges: $ $ $ Total service department charges $ $ $ Operating income $ $ $ b. What is the profit margin percentage of each division? Round to one decimal place. Division Profit Margin Air Division % Rail Division % Truck Division % Identify the most successful division according to the profit margin percentage. 3. All of the following statements are true regarding the evaluation of divisional performance for A-1 except: A better measure for A-1 Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because both measures incorporate asset utilization into the measures. A better measure for A-1 Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because the amount of assets used by a division in earning a return is a very important consideration in evaluating divisional performance. A better measure for A-1 Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because this company requires a significant investment in fixed assets and distribution facilities. All of these choices are correct. Select the correct answer from the choices above.:

Profit Center Responsibility Reporting A-One Freight Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31, 20Y3. Revenues—Air Division $ 1,086,300 Revenues—Rail Division 1,307,900 Revenues—Truck Division 2,315,700 Operating Expenses—Air Division 688,400 Operating Expenses—Rail Division 778,400 Operating Expenses—Truck Division 1,400,400 Corporate Expenses—Shareholder Relations 165,200 Corporate Expenses—Customer Support 546,000 Corporate Expenses—Legal 262,400 General Corporate Officers’ Salaries 364,900 The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered: Air Rail Truck Number of customer contacts 4,600 5,500 8,100 Number of hours billed 1,000 1,600 1,500 Division management does not control activities related to the shareholder relations department and general corporate officers’ salaries. Required: a. Prepare quarterly income statements showing operating income for the three divisions. Use three column headings: Air, Rail, and Truck. A-One Freight Inc. Divisional Income Statements For the Quarter Ended December 31, 20Y3 Air Rail Truck $ $ $ $ $ $ Less service department charges: $ $ $ Total service department charges $ $ $ Operating income $ $ $ b. What is the profit margin percentage of each division? Round to one decimal place. Division Profit Margin Air Division % Rail Division % Truck Division % Identify the most successful division according to the profit margin percentage. 3. All of the following statements are true regarding the evaluation of divisional performance for A-1 except: A better measure for A-1 Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because both measures incorporate asset utilization into the measures. A better measure for A-1 Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because the amount of assets used by a division in earning a return is a very important consideration in evaluating divisional performance. A better measure for A-1 Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because this company requires a significant investment in fixed assets and distribution facilities. All of these choices are correct. Select the correct answer from the choices above.:

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 2PA: Profit center responsibility reporting for a service company Red Line Railroad Inc. has three...

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Profit Center Responsibility Reporting

A-One Freight Inc. has three regional divisions organized as profit centers. The chief executive officer (CEO) evaluates divisional performance using operating income as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31, 20Y3.

Revenues—Air Division	$ 1,086,300
Revenues—Rail Division	1,307,900
Revenues—Truck Division	2,315,700
Operating Expenses—Air Division	688,400
Operating Expenses—Rail Division	778,400
Operating Expenses—Truck Division	1,400,400
Corporate Expenses—Shareholder Relations	165,200
Corporate Expenses—Customer Support	546,000
Corporate Expenses—Legal	262,400
General Corporate Officers’ Salaries	364,900

The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company’s point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered:

	Air	Rail	Truck
Number of customer contacts	4,600		5,500	8,100
Number of hours billed	1,000		1,600	1,500

Division management does not control activities related to the shareholder relations department and general corporate officers’ salaries.

Required:

a. Prepare quarterly income statements showing operating income for the three divisions. Use three column headings: Air, Rail, and Truck.

A-One Freight Inc.
Divisional Income Statements
For the Quarter Ended December 31, 20Y3
	Air	Rail	Truck
	$	$	$

	$	$	$
Less service department charges:
	$	$	$

Total service department charges	$	$	$
Operating income	$	$	$

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

Division	Profit Margin
Air Division	%
Rail Division	%
Truck Division	%

Identify the most successful division according to the profit margin percentage.

3. All of the following statements are true regarding the evaluation of divisional performance for A-1 except:

A better measure for A-1 Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because both measures incorporate asset utilization into the measures.
A better measure for A-1 Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because the amount of assets used by a division in earning a return is a very important consideration in evaluating divisional performance.
A better measure for A-1 Freight than the amount of operating income per dollar of earned revenue would be either rate of return on investment or residual income, because this company requires a significant investment in fixed assets and distribution facilities.
All of these choices are correct.

Select the correct answer from the choices above.:

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