Diversified Railroad 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, 2008:

Revenues'East Division ........ $500,000

Revenues'West Division ........ 690,000

Revenues'Metro Division ........ 944,000

Operating Expenses'East Division .... 303,000

Operating Expenses'West Division ..... 399,600

Operating Expenses'Metro Division .... 536,000

Corporate Expenses'Shareholder Relations . 75,000

Corporate Expenses'Customer Support .. 192,000

Corporate Expenses'Legal ....... 102,000

General Corporate Officers' Salaries ..... 180,000

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 reports 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:

Instructions
1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Metro.
2. Identify the most successful division according to the profit margin. Round to two decimal places.
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 presentmethod.

Transcribed Image Text:

East Metro Number of customer contacts 3,200 3,680 5,920 960 Number of hours billed 640 1,120