Chapter 23, Problem 23.2APR

(1)

To determine

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Service department charges: These are the indirect expenses incurred by profit center. These are charged for the services received by the department or division, based on the activity base of the service department.

Profit margin: This ratio gauges the operating profitability by quantifying the amount of income earned from business operations from the sales generated.

Formula of profit margin:

$\text{Profit margin}=\frac{\text{Income from operations}}{\text{Sales}}$

To prepare: The income statements for E, W, and C Divisions of Incorporation TR for the quarter ended December 31, 2016.

(2)

To determine

Profit margin and indicate the most profitable division.

(3)

To determine

To recommend: The chief executive officer to use better measure to evaluate the performance or profitability of the division.