Profit Center Responsibility Reporting for a Service Company Conico 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: Revenues-East Revenues-West $1,960,000 2,800,000 4,480,000 1.120,000 1,890,000 2,660.000 Revenues-Central Operating Expenses-East Operating Expenses - West Operating Expenses-Central Corporate Expenses-Shareholder Relations Corporate Expenses Customer Support Corporate Expenses-tegal General Corporate Officers Salaries 420,000 560,000 627,200 1,680,000 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 Shareholder Relations Department and general corporate officers salaries are not controllable by division management. 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 a cost driver for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is a cost driver for this work. The following additional information has been gathered: East West Central 7,90 Number of customer contacts 2,100 3,920 Number of hours billed 1,040 2.450 2,110 Required: 1. Prepare quarterly income statements showing income from operations for the three divisions, Use three column headings: East West, and Central Conico Railroad Inc. Divisional Income Statements For the Quarter Ended December 31 East Central Revenues bus v Operating expenses Income from operations before service department locations Less service department allocations Customer Support Legal Total service department allocations Income from operations QO0 DODO DIDO 2. Compute the profit margin. Rounded to nearest whole percent. Division Profit Margin East Region % West Region % Central Region % Identify the most successful region according to the profit margin. a 3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions? a. The method used to evaluate the performance of the divisions should be reevaluated. b. A better divisional performance measure would be the rate of return on investment (income from operations divided by divisional assets). c. A better divisional performance measure would be the residual income (income from operations less a minimal return on divisional assets). d. None of these choices would be indluded. e. All of these choices (a, b & c) would be included