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Profit Center Responsibility Reporting Johnson Products Inc. has three regional divisions organized 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, 2012: Revenues-East $ 1,085,200 Revenues-West 1,259,700 Revenues-Central 2,337,500 Operating Expenses-East 687,700 Operating Expenses-West 749,700 Operating Expenses-Central 1,413,600 Corporate Expenses-Shareholder Relations 165,000 Corporate Expenses-Customer Support 621,600 Corporate Expenses-Legal 180,000 General Corporate Officer’s Salaries 364,500 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: East West Central Number of customer contacts 5,600 6,700 9,900 Number of hours billed 900 1,400 1,300 Required: Hide · Hint(s) a.Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central. Johnson Products Inc. Divisional Income Statements For the Quarter Ended December 31, 2012 East West Central Revenues $ Correct 8 of Item 1 $ Correct 9 of Item 1 $ Correct 10 of Item 1 Operating expenses Correct 12 of Item 1 Correct 13 of Item 1 Correct 14 of Item 1 Income from operations before service department charges $ Correct 16 of Item 1 $ Correct 17 of Item 1 $ Correct 18 of Item 1 Less service department charges: Customer support $ Correct 21 of Item 1 $ Correct 22 of Item 1 $ Correct 23 of Item 1 Legal Correct 25 of Item 1 Correct 26 of Item 1 Correct 27 of Item 1 Subtotal $ Correct 29 of Item 1 $ Correct 30 of Item 1 $ Correct 31 of Item 1 Income from operations $ Correct 33 of Item 1 $ Correct 34 of Item 1 $ Correct 35 of Item 1 a. Determine the customer contact rate by dividing service cost by output. For each division’s customer support, multiply the customer contact rate by the number of customer contacts. Repeat this process for the other service department charges. Subtract the service department charges for a division from that division’s income from operations before such charges. ·b.What is the profit margin percentage of each division? Round to one decimal place. Division Profit Margin East Division % West Division % Central Division % Identify the most successful division according to the profit margin percentage. Select East West Central Correct 4 of Item 2 c.Provide a recommendation to the CEO for a better method for evaluating the performance of the divisions. In your recommendation, identify the major weakness of the present method. The input in the box below will not be graded, but may be reviewed and considered by your instructor. blank b. Income from operations divided by revenues equals profit margin. c. What other performance measure(s) could be used?

Profit Center Responsibility Reporting

Johnson Products Inc. has three regional divisions organized 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, 2012:

Revenues-East $ 1,085,200
Revenues-West 1,259,700
Revenues-Central 2,337,500
Operating Expenses-East 687,700
Operating Expenses-West 749,700
Operating Expenses-Central 1,413,600
Corporate Expenses-Shareholder Relations 165,000
Corporate Expenses-Customer Support 621,600
Corporate Expenses-Legal 180,000
General Corporate Officer’s Salaries 364,500

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:

East West Central
Number of customer contacts 5,600 6,700 9,900
Number of hours billed 900 1,400 1,300

Required:

Hide · Hint(s)

a.Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central.

Johnson Products Inc.
Divisional Income Statements
For the Quarter Ended December 31, 2012
East
West
Central
Revenues
$

Correct 8 of Item 1

$

Correct 9 of Item 1

$

Correct 10 of Item 1

Operating expenses
Correct 12 of Item 1
Correct 13 of Item 1
Correct 14 of Item 1
Income from operations before service department charges
$

Correct 16 of Item 1

$

Correct 17 of Item 1

$

Correct 18 of Item 1

Less service department charges:
Customer support
$

Correct 21 of Item 1

$

Correct 22 of Item 1

$

Correct 23 of Item 1

Legal
Correct 25 of Item 1
Correct 26 of Item 1
Correct 27 of Item 1
Subtotal
$

Correct 29 of Item 1

$

Correct 30 of Item 1

$

Correct 31 of Item 1

Income from operations
$

Correct 33 of Item 1

$

Correct 34 of Item 1

$

Correct 35 of Item 1

 

a. Determine the customer contact rate by dividing service cost by output. For each division’s customer support, multiply the customer contact rate by the number of customer contacts. Repeat this process for the other service department charges. Subtract the service department charges for a division from that division’s income from operations before such charges.

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

Division Profit Margin
East Division %
West Division %
Central Division %

Identify the most successful division according to the profit margin percentage.
Select East West Central Correct 4 of Item 2

c.Provide a recommendation to the CEO for a better method for evaluating the performance of the divisions. In your recommendation, identify the major weakness of the present method.

The input in the box below will not be graded, but may be reviewed and considered by your instructor.

blank

b. Income from operations divided by revenues equals profit margin.

c. What other performance measure(s) could be used?

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