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

Revenues—East $ 870,000 Revenues—West 1,032,000 Revenues—Central 1,872,000 Operating Expenses—East 563,300 Operating Expenses—West 618,240 Operating Expenses—Central 1,166,940 Corporate Expenses—Shareholder Relations 154,000 Corporate Expenses—Customer Support 400,000 Corporate Expenses—Legal 270,000 General Corporate Officers’ Salaries 275,000 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 5,000 6,000 9,000 Number of hours billed 1,350 2,160 1,890 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.