homas 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:

RevenuesN Region	$877,700
RevenuesS Region	1,079,900
RevenuesW Region	1,847,200
Operating ExpensesN Region	556,200
Operating ExpensesS Region	642,700
Operating ExpensesW Region	1,117,100
Corporate ExpensesDispatching	417,600
Corporate ExpensesEquipment Management	236,800
Corporate ExpensesTreasurers	133,500
General Corporate Officers Salaries	294,800

The company operates three service departments: the Dispatching Department, the Equipment Management Department, and the Treasurers 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 Treasurers 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	4,400		5,200		7,800
Number of railroad cars in inventory	900		1,500		1,300

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.

Thomas Railroad Company Divisional Income Statements For the Quarter Ended December 31

	North	South	West
Revenues	$fill in the blank 2d850706afbcf83_1	$fill in the blank 2d850706afbcf83_2	$fill in the blank 2d850706afbcf83_3
Operating expenses	fill in the blank 2d850706afbcf83_4	fill in the blank 2d850706afbcf83_5	fill in the blank 2d850706afbcf83_6
Income from operations before service department charges	$fill in the blank 2d850706afbcf83_7	$fill in the blank 2d850706afbcf83_8	$fill in the blank 2d850706afbcf83_9
Service department charges:
Dispatching	$fill in the blank 2d850706afbcf83_10	$fill in the blank 2d850706afbcf83_11	$fill in the blank 2d850706afbcf83_12
Equipment Management	fill in the blank 2d850706afbcf83_13	fill in the blank 2d850706afbcf83_14	fill in the blank 2d850706afbcf83_15
Total service department charges	$fill in the blank 2d850706afbcf83_16	$fill in the blank 2d850706afbcf83_17	$fill in the blank 2d850706afbcf83_18
Income from operations	$fill in the blank 2d850706afbcf83_19	$fill in the blank 2d850706afbcf83_20	$fill in the blank 2d850706afbcf83_21

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

Region	Profit Margin
North Region	fill in the blank 024606fed06105c_1 %
South Region	fill in the blank 024606fed06105c_2 %
West Region	fill in the blank 024606fed06105c_3 %

Identify the most successful region according to the profit margin.

NorthSouthWest

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

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