Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, andassets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance.Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost ofsales).The following information is from Lauderdale's first year of operations:Region I$ 1,200,000450,000420,000Required A Required BRegion II$ 1,650,000810,000630,000RevenuesCost of salesSelling, General andAdministrative (all fixed)Corporate overheadInformation on the division assets in the three regions of Lauderdale Corporation follows:Region I$ 700,000Region IIRegion III630,0001,287,500Lauderdale Corporation has a cost of capital of 8.6 percent.Required:a. Compute residual income for the three regions. Ignore taxes.b. How have these regions performed?Complete this question by entering your answers in the tabs below.Residual IncomeRegion III$ 2,250,0001,140,000850,000Region ICompute residual income for the three regions. Ignore taxes.Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.Region IIRegion III< Required ATotalCorporation$ 5,100,0002,400,000Required B>1,900,000432,000

Introduction:- Calculation of gross profit ratio Gross profit ratio =Individual Divisional gross…

Answered: Required: a. Compute residual income…

Business

Accounting

Required: a. Compute residual income for the three regions. Ignore taxes. b. How have these regions performed?

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 2PA: Profit center responsibility reporting for a service company Red Line Railroad Inc. has three...

See similar textbooks

Similar questions

Service department charges In divisional income statements prepared for Demopolis Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll distributions, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of 64,560, and the Purchasing Department had expenses of 40,000 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: A. Determine the total amount of payroll checks and purchase requisitions processed per year by the company and each division. B. Using the cost driver information in (A), determine the annual amount of payroll and purchasing costs allocated to the Residential, Commercial, and Government Contract divisions from payroll and purchasing services. C. Why does the Residential Division have a larger support department allocation than the other two divisions, even though its sales are lower?
Profit center responsibility reporting for a service company Red Line Railroad Inc. has three regional divisions organized 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: The company operates three support 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 companys point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is a cost driver for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is a cost driver for this work. The following additional information has been gathered: Instructions 1. Prepare quarterly income statements showing operating income for the three divisions. Use three column headings: East, West, and Central. 2. Identify the most successful division according to the profit margin. Round to the nearest whole percent. 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.
Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II $ 1,202,000 $1,652,000 451,000 811,000 1,141,000 633,000 853,000 423,000 Region I $ 702,000 Region II 632,000 Region III1,290,500 Revenues Cost of sales Selling, General and Administrative (all fixed) Corporate overhead Information on the division assets in the three regions of Lauderdale Corporation follows: Region III Total Corporation $2,252,000 $ 5,106,000 2,403,000 1,909,000 436,000 Lauderdale Corporation has a cost of capital of 8.6 percent. Required: a. Compute residual income for the three…
Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II Region III Total Corporation Revenues $ 1,200,000 $ 1,650,000 $ 2,250,000 $ 5,100,000 Cost of sales 450,000 810,000 1,140,000 2,400,000 Selling, General and Administrative (all fixed) 420,000 630,000 850,000 1,900,000 Corporate overhead 432,000 Required: Compute divisional operating income for the three regions. Ignore taxes. How have these regions performed?
Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II Region III Total Corporation Revenues $ 1,200,000 $ 1,650,000 $ 2,250,000 $ 5,100,000 Cost of sales 450,000 810,000 1,140,000 2,400,000 Selling, General and Administrative (all fixed) 420,000 630,000 850,000 1,900,000 Corporate overhead 432,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 700,000 Region II 630,000 Region III 1,287,500 Lauderdale Corporation has a cost of capital of 8.6 percent. Required: Compute…
Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Region I Region II Region III Total Corporation Revenues $ 1,206,000 $ 1,656,000 $ 2,256,000 $ 5,118,000 Cost of sales 453,000 813,000 1,143,000 2,409,000 Selling, General and Administrative (all fixed) 429,000 639,000 859,000 1,927,000 Corporate overhead 444,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I $ 706,000 Region II 636,000 Region III 1,296,500 Required: Compute the division ROI for each of the three regions. How have…
Arlington Clothing, Inc., shows the following information for its two divisions for year 1. Lake Region Coastal Region Sales revenue $ 4,160,000 $ 13,070,000 Cost of sales 2,691,300 6,535,000 Allocated corporate overhead 249,600 784,200 Other general and administration 553,900 3,755,000 Required: a. Compute divisional operating income for the two divisions. Ignore taxes. b-1. What are the gross margin and operating margin percentages for both divisions? b-2. How well have these divisions performed?
3. In divisional income statements prepared for Demopolis Company, the Payroll Department costs are charged back to user divisions on the basis of the number of payroll distributions, and the Purchasing Department costs are charged back on the basis of the number of purchase requisitions. The Payroll Department had expenses of $64,560, and the Purchasing Department had expenses of $40,000 for the year. The following annual data for Residential, Commercial, and Government Contract divisions were obtained from corporate records: Residential Commercial Government Contract Sales $2,000,000 $3,250,000 $2,900,000 Number of employees: Weekly payroll (52 weeks a year) Monthly Payroll Number of purchase requisitions per year 410 210 160 75 35 15 7,400 3,000 2,000 a. Determine the total dollar amount of payroll checks and purchase requisitions processed per year by the company and each division. ing the activity base information in (a), determine the annual dollar amount of payroll and…
Exercise 14-32 (Algo) Comparing Business Units Using Residual Income (LO 14-3) Lauderdale Corporation is organized in three geographical divisions (regions) with managers responsible for revenues, costs, and assets in their respective regions. The firm is highly decentralized and managers are evaluated solely on divisional performance. Corporate overhead (all fixed) is allocated to the regions based on regional gross margin (regional revenue minus regional cost of sales). The following information is from Lauderdale's first year of operations: Revenues Cost of sales Selling, General and Administrative (all fixed) Corporate overhead Region I $ 1,218,000 459,000 447,000 Region II $ 1,680,000 Region III 819,000 657,000 $ 2,268,000 1,149,000 877,000 Total Corporation $ 5,166,000 2,427,000 1,981,000 Information on the division assets in the three regions of Lauderdale Corporation follows: Region I Region II Region III $ 718,000 648,000 1,314,500 Lauderdale Corporation has a cost of capital…
Red Line Railroad 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: Revenues—East $866,000 Revenues—West 1,030,000 Revenues—Central 1,890,000 Operating Expenses—East 565,700 Operating Expenses—West 627,360 Operating Expenses—Central 1,170,060 Corporate Expenses—Shareholder Relations 156,000 Corporate Expenses—Customer Support 320,000 Corporate Expenses—Legal 255,200 General Corporate Officers’ Salaries 273,500 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 Shareholder Relations Department and general corporate officers’ salaries are not controllable by division…
Red Line Railroad 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: Revenues—East $ 862,000 Revenues—West 1,036,000 Revenues—Central 1,890,000 Operating Expenses—East 563,600 Operating Expenses—West 621,840 Operating Expenses—Central 1,167,900 Corporate Expenses—Shareholder Relations 150,000 Corporate Expenses—Customer Support 360,000 Corporate Expenses—Legal 252,000 General Corporate Officers’ Salaries 274,500 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…
Red Line Railroad 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: Revenues—East $ 862,000 Revenues—West 1,036,000 Revenues—Central 1,890,000 Operating Expenses—East 563,600 Operating Expenses—West 621,840 Operating Expenses—Central 1,167,900 Corporate Expenses—Shareholder Relations 150,000 Corporate Expenses—Customer Support 360,000 Corporate Expenses—Legal 252,000 General Corporate Officers’ Salaries 274,500 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…