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 operating income 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 $3,780,000 Revenues—S Region 5,673,000 Revenues—W Region 5,130,000 Operating Expenses—N Region 2,678,500 Operating Expenses—S Region 4,494,890 Operating Expenses—W Region 3,770,050 Corporate Expenses—Dispatching 182,000 Corporate Expenses—Equipment Management 1,200,000 Corporate Expenses—Treasurer's 734,000 General Corporate Officers' Salaries 1,380,000 The company operates three support 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 650 1,105 845 Number of railroad cars in inventory 6,000 8,400 9,600 Required: 1. Prepare quarterly income statements showing operating income for the three regions. Use three column headings: North, South, and West. Round your interim calculations to three decimal places, if required. Thomas Railroad Company Divisional Income Statements For the Quarter Ended December 31 North South West Revenues $ $ $ Operating expenses Operating income before support department allocations $ $ $ Support department allocations: Dispatching $ $ $ Equipment management Total support department allocations $ $ $ Operating income $ $ $ 2. What is the profit margin of each region? Division Profit Margin North Region % South Region % West Region % 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 regions? The method used to evaluate the performance of the regions should be reevaluated. A better regional performance measure would be the return on investment (operating income divided by regional assets). A better regional performance measure would be the residual income (operating income less a minimal return on regional assets). None of these choices would be included. All of these choices (a, b & c) would be included.

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 operating income 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 $3,780,000 Revenues—S Region 5,673,000 Revenues—W Region 5,130,000 Operating Expenses—N Region 2,678,500 Operating Expenses—S Region 4,494,890 Operating Expenses—W Region 3,770,050 Corporate Expenses—Dispatching 182,000 Corporate Expenses—Equipment Management 1,200,000 Corporate Expenses—Treasurer's 734,000 General Corporate Officers' Salaries 1,380,000 The company operates three support 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 650 1,105 845 Number of railroad cars in inventory 6,000 8,400 9,600 Required: 1. Prepare quarterly income statements showing operating income for the three regions. Use three column headings: North, South, and West. Round your interim calculations to three decimal places, if required. Thomas Railroad Company Divisional Income Statements For the Quarter Ended December 31 North South West Revenues $ $ $ Operating expenses Operating income before support department allocations $ $ $ Support department allocations: Dispatching $ $ $ Equipment management Total support department allocations $ $ $ Operating income $ $ $ 2. What is the profit margin of each region? Division Profit Margin North Region % South Region % West Region % 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 regions? The method used to evaluate the performance of the regions should be reevaluated. A better regional performance measure would be the return on investment (operating income divided by regional assets). A better regional performance measure would be the residual income (operating income less a minimal return on regional assets). None of these choices would be included. All of these choices (a, b & c) would be included.

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 2PB

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Question

Revenues—N Region	$3,780,000
Revenues—S Region	5,673,000
Revenues—W Region	5,130,000
Operating Expenses—N Region	2,678,500
Operating Expenses—S Region	4,494,890
Operating Expenses—W Region	3,770,050
Corporate Expenses—Dispatching	182,000
Corporate Expenses—Equipment Management	1,200,000
Corporate Expenses—Treasurer's	734,000
General Corporate Officers' Salaries	1,380,000

The company operates three support 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	650	1,105	845
Number of railroad cars in inventory	6,000	8,400	9,600

Required:

1. Prepare quarterly income statements showing operating income for the three regions. Use three column headings: North, South, and West. Round your interim calculations to three decimal places, if required.

Thomas Railroad Company
Divisional Income Statements
For the Quarter Ended December 31
	North	South	West
Revenues	$	$	$
Operating expenses
Operating income before support department allocations	$	$	$
Support department allocations:
Dispatching	$	$	$
Equipment management
Total support department allocations	$	$	$
Operating income	$	$	$

2. What is the profit margin of each region?

Division	Profit Margin
North Region	%
South Region	%
West Region	%

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 regions?

The method used to evaluate the performance of the regions should be reevaluated.
A better regional performance measure would be the return on investment (operating income divided by regional assets).
A better regional performance measure would be the residual income (operating income less a minimal return on regional assets).
None of these choices would be included.
All of these choices (a, b & c) would be included.

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