Profit center responsibility reporting for a service company OBJ. 3 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, 2016:

Revenues—N Region $3,780,000 Revenues—S Region 5,673,000 Revenues—W Region 5,130,000 Operating Expenses—N Region 2,678,500 Operating Expenses—S Region 4,494,890 Operating Expenses—W Region 3,770,050 Corporate Expenses—Dispatching 182,000 Corporate Expenses—Equipment Management 1,200,000 Corporate Expenses—Treasurer’s 734,000 General Corporate Officers’ Salaries 1,380,000 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:

North South West Number of scheduled trains 650 1,105 845 Number of railroad cars in inventory 6,000 8,400 9,600 Instructions 1. Prepare quarterly income statements showing income from operations for the three regions. Use three column headings: North, South, and West.

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

3. Provide a recommendation to the CEO for a better method for evaluating the performance of the regions. In your recommendation, identify the major weakness of the present method.