Reference no: EM13824055

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 $ 720,000

Revenues—West   860,000

Revenues—Central 1,560,000

Operating Expenses—East   456,150

Operating Expenses—West   511,700

Operating Expenses—Central   943,550

Corporate Expenses—Shareholder Relations   112,000

Corporate Expenses—Customer Support   385,000

Corporate Expenses—Legal   152,000

General Corporate Officers’ Salaries   240,000

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 4,375 5,250 7,875

Number of hours billed 950 1,520 1,330

Instructions

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

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

3. 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.