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:
|Corporate Expenses-Shareholder Relations||165,000|
|Corporate Expenses-Customer Support||621,600|
|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:
|Number of customer contacts||5,600||6,700||9,900|
|Number of hours billed||900||1,400||1,300|
a.Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central.
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.
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.
b. Income from operations divided by revenues equals profit margin.
c. What other performance measure(s) could be used?