Profit Center Responsibility Reporting for a Service Company

Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, 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: the Dispatching Department, the Equipment Management Department, and the Treasurer’s Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. It makes sure the right freight cars are at the right place at the right time. The Treasurer’s Department conducts a variety of services for the company as a whole. The following additional information has been gathered:

Required:

1. Prepare quarterly income statements showing operating income for the three regions. Use three column headings: North, South, and West. Do not round your interim calculations.

2. What is the profit margin of each region? Round to one decimal place.

Identify the most successful region according to the profit margin.

3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the regions?

1. The method used to evaluate the performance of the regions should be reevaluated.
2. A better regional performance measure would be the return on investment (operating income divided by regional assets).
3. A better regional performance measure would be the residual income (operating income less a minimal return on regional assets).
4. None of these choices would be included.
5. All of these choices (a, b & c) would be included.

Profit Center Responsibility Reporting for a Service Company

Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, 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:

The company operates three service departments: the Dispatching Department, the Equipment Management Department, and the Treasurer’s Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cars inventories. It makes sure the right freight cars are at the right place at the right time. The Treasurer’s Department conducts a variety of services for the company as a whole. The following additional information has been gathered:

Required:

1. Prepare quarterly income statements showing income from operations for the three regions. Use three column headings: North, South, and West. Do not round your interim calculations.

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2. What is the profit margin of each division? Round to one decimal place.

Identify the most successful region according to the profit margin.
West

3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions?

The method used to evaluate the performance of the divisions should be reevaluated.

A better divisional performance measure would be the rate of return on investment (income from operations divided by divisional assets).

A better divisional performance measure would be the residual income (income from operations less a minimal return on divisional assets).

None of these choices would be included.

All of these choices (a, b & c) would be included.

e

Terry J. Lundgren, CEO and president of Macy's, was asked, “[Do you have] any job-seeking advice for college grads?” Here's what he had to say:

Use whatever contact you have to try to get your résumé read. That's the most important thing—just to get it in front of people. Because we're all flooded with, of course, thousands and thousands of résumés in a company of our size, and getting your résumé read is not an automatic. And so do what you can do to get it in front of the people who matter who will read it. It's not the CEO typically, by the way; it's the HR person or the head of recruiting or head of training or whatever. Third, don't stop there. Don't just do it online, because it's easy to do it online. Do it online and then put it in an envelope and send it to the top company that you're interested in pursuing. And then follow up with a phone call, and talk to the assistant and say: “I just want to make sure that my résumé's getting read. I'm very interested in your company, and it's really important to me. And I just want to know—can you give me advice?—is there anything that I can do to get my résumé in front of your boss?” Whatever you have to say, just to show the most important thing—that you're hungry. And to convince them, maybe you use a little of your acting skills. And I'll probably relate it to college dating—you know, use a little, “I'm really interested in you”— to say: “This is the company I want to work for. Yours is the company that I want to work for.” And then once you get, hopefully, more than one opportunity, you're back in charge to say, “Where do I want to go and where do I want to work.”31

Based on Lundgren's comments and please include your own real-world perspectives and experiences, respond to the following questions:

1. Explain what Lundgren means by showing “you're hungry” for a position. Describe ways in which you can show hunger in a positive way. How have you done this in your past experiences?

2. What does he suggest about the effectiveness of relying exclusively on electronic means to submit job applications? What combination of communication channels do you consider optimal for gaining a job of interest? Any stories from your own life on what worked and didn't work when you used electronic submission practices?

3. He suggests that you should view the process like dating. In what ways does this analogy make sense to you? Explain.

6.2        Radical Rewrite: Instruction E-Mail—Tips for Avoiding Hackers

Your Task. Analyze the following e-mail to be sent by the CEO to all employees.

• Step 1: Identify five or more weaknesses describing why each is a weakness.
• Step 2: Revise this e-mail so that it reflects writing techniques you learned in this and previous chapters.

To:           Staff Members

From:          G. B. Goldman <[email protected]>

Subject: Hackers!                

Staff Members:

This is to inform you that, like other banks, we are afraid of hackers. We fear that employees will expose valuable information to hackers without realizing what they are doing. Because of our fear, we have consulted cybersecurity experts, and they gave us much good advice with new procedures to be followed. Here are the procedures suggested by experts:

1. We don’t want you to leave out-of-office messages. These voice mail or e-mails might explain when you will be away. Such messages are a red flag to hackers telling them that your computer is vacant and not being monitored.

2. Because smartphones can be lost or stolen, don’t snap photos of company documents. Phones may be lost or stolen, and our data might be compromised.

3. Although small memory devices (thumb drives) are handy and easy to use, you may be inclined to store company files or information on these drives. Don’t do it. They can easily be lost, thus exposing our company information.

4. Using work e-mail addresses for social media is another problem area. When you post details about your job, hackers can figure out an organization’s best target.

5. Phishing links are the worst problem. Any request for password information or any requests to click links should be viewed with suspicion. Never click them. Even messages that seem to be from high-level officials or the human resources department within our own company can be sophisticated, realistic fakes. Examples include a request to click a link to receive a package or to download a form from within the company.

We want to let you all know that within the next two months, we plan to begin implementing a program that will educate and train employees with regard to what to avoid. The program will include fake phishing messages. The program will be explained and you will learn more from your managers in training workshops that are scheduled to begin September 1.

G. B. Goldman, CEO
First Federal Savings and Loan | [email protected] | 678-405-3302

Cholesterol levels are a major concern to health insurance providers. Cholesterol levels in U.S. adults average 215 with a standard deviation of 30. If the cholesterol levels of a sample of 42 U.S. adults is taken, what is the probability that the mean cholesterol level of the sample 1) Will be less than 200? 2) Will be between 205 and 225? 3) Will be greater than 220?

2. Suppose that 36% of the clients of a company use smart phones. Draw a random sample of 200 clients, what is the probability that the sample proportion is 1) Less than 0.28? 2) Greater than 0.42?

3. A bottler wishes to ensure that the average of 16 ounces of fruit juice is used to fill each bottle. In order to analyze the accuracy of the bottling process, he takes a random sample of 48 bottles. The mean weight of the juice in the sample is 15.8 ounces. Assume the population standard deviation is 0.8 ounce. Test his concern at the 5% significance level.

4. In a sample of 1022 U.S. adults, 73% say that they are not happy with the current investment climate. Is there evidence that the percentage has significantly decreased from the 74% reported previously? Do the test at the 1% level.

5. The percentage of bills being paid by Medicare has been 31%. An examination of 8368 recent bills reveals that 32% of these bills are being paid by Medicare. Is this evidence of a change in the percentage of bills being paid by Medicare? Do the test at the 10% level.

World Foods, Inc., imports food products such as meats, cheese, and pastries to the United States from warehouses at ports in hamburg, Marseilles, and Liverpool. Ships from these ports deliver the products to Norfolk, New York, and Savannah, where they are stored in company warehouses before being shipped to distribution centers in Dallas, St. Louis, and Chicago. The products are then distributed to specialty food stores and sold through catalogs. The shipping costs ($/1,000 lb.) from the European ports to the U.S. cities and the available supplies (1,000 lb.) at the European ports are provided in the following table:

The transportation costs ($/1,000 lb.) from each U.S. City of the three distribution centers and the demands (1,000 lb.) at the distribution centers are as follows:

Determine the optimal shipments between the European ports and the warehouses and the distribution centers to minimize total transportation costs.

The report disclosed that travelers who have run into huge hassles with airlines refusing to refund canceled flights, pocketing millions owed to consumers, and charging some fees even when they publicly announce they are waiving fees due to COVID-19. And some Airbnb landlords have denied refunds, even after the company said refunds would happen, because of a limited window when cancellations will be refunded. It has left many travelers out thousands of dollars for trips they will never reschedule. With the coronavirus crisis, airlines have imposed new policies that may violate federal rules.

So, The Transportation Department requires giving customers an option to take a full refund if the airline cancels a flight. Yet many airlines, U.S. carriers, as well as airlines flying to the U.S. covered by the same regulation, are offering only a voucher toward future travel. Why would the airlines think that such a policy could possibly work and what might their justification(s) be? Also, Nine U.S. senators recently sent letters to airline CEOs urging them to give customers full cash refunds for canceled flights “in light of the pressing need and unprecedented bailout” that the airline industry just got from Congress. Is this a reasonable request or an example of Congress “arm twisting” companies during an unprecedented financial crisis? Make points on both sides of the argument.

1.  XYZ Company, a manufacturer of computer peripheries, assembles a particular product line at a wholly owned facility in Singapore. The product is designed at XYZ’s headquarters in the United States, but the different components used in the assembly process are manufactured throughout Asia and shipped to Singapore for final assembly. Some of the components are manufactured in multiple locations, so the customer can actually designate where XYZ should source the components. The final product is assembled in Singapore and then shipped via Emery Freight to customers throughout Asia. XYZ Singapore does not buy any components from the United States, but it invoices all of the components purchased from Asian suppliers in U.S. dollars. In addition, it sells the product to Asian customers in U.S. dollars. However, all of its expenses in Singapore are paid in Singapore dollars. Most of the key marketing decisions are made by the U.S. marketing staff, although the Singapore staff acts as a liaison with Emery Freight personnel and deals with the local workers, most of whom come from Sri Lanka on short-term work visas.

     XYZ prefers to translate the results of their Singapore subsidiary into dollars using the current rate method. What is the advantage to XYZ of using the current rate method? As their auditor, what do you think of their decision? If their decision is wrong and they should be using the temporal method, is it possible for them to change?

If Manreen grasps the concept of the preservation of quantity, she has now acquired the
principle of:

1. How should the acquisition of general fixed assets acquired by capital leases be accounted for?