Profit Center Responsibility Reporting for a Service Company

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 $31$:

Revenues$$N Region $$830,500$

Revenues$$S Region $1,008,500$

Revenues$$W Region $1,770,500$

Operating Expenses$$N Region $526,300$

Operating Expenses$$S Region $600,200$

Operating Expenses$$W Region $1,070,700$

Corporate Expenses$$Dispatching $389,400$

Corporate Expenses$$Equipment Management $230,400$

Corporate Expenses$$Treasurer$$s $126,300$

General Corporate Officers$$ Salaries $278,900$

The company operates three service departments: the Dispatching Department, the Equipment Management Department, and the Treasurer$$s Department. The Treasurer$$s Department and general corporate officers$$ salaries are not controllable by division management. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the inventories of railroad cars. It makes sure the right freight cars are at the right place at the right time. The Treasurer$$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 $4,4005,3008,000$

Number of railroad cars in inventory $9001,4001,300$

Required:

Question Content Area

$1.$ 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 $2$eaa$5$d$00$b$064$fdc$\_1$

$fill in the blank $2$eaa$5$d$00$b$064$fdc$\_2$

$fill in the blank $2$eaa$5$d$00$b$064$fdc$\_3$

Operating expenses fill in the blank $2$eaa$5$d$00$b$064$fdc$\_4$

fill in the blank $2$eaa$5$d$00$b$064$fdc$\_5$

fill in the blank $2$eaa$5$d$00$b$064$fdc$\_6$

Income from operations before service department charges $fill in the blank $2$eaa$5$d$00$b$064$fdc$\_7$

$fill in the blank $2$eaa$5$d$00$b$064$fdc$\_8$

$fill in the blank $2$eaa$5$d$00$b$064$fdc$\_9$

Less service department charges:

Dispatching $fill in the blank $2$eaa$5$d$00$b$064$fdc$\_10$

$fill in the blank $2$eaa$5$d$00$b$064$fdc$\_11$

$fill in the blank $2$eaa$5$d$00$b$064$fdc$\_12$

Equipment Management fill in the blank $2$eaa$5$d$00$b$064$fdc$\_13$

fill in the blank $2$eaa$5$d$00$b$064$fdc$\_14$

fill in the blank $2$eaa$5$d$00$b$064$fdc$\_15$

Total service department charges $fill in the blank $2$eaa$5$d$00$b$064$fdc$\_16$

$fill in the blank $2$eaa$5$d$00$b$064$fdc$\_17$

$fill in the blank $2$eaa$5$d$00$b$064$fdc$\_18$

Income from operations $fill in the blank $2$eaa$5$d$00$b$064$fdc$\_19$

$fill in the blank $2$eaa$5$d$00$b$064$fdc$\_20$

$fill in the blank $2$eaa$5$d$00$b$064$fdc$\_21$

Question Content Area

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

Region Profit Margin

North Region fill in the blank $173805$fa$204901$a$\_1$

$\%$

South Region fill in the blank $173805$fa$204901$a$\_2$

$\%$

West Region fill in the blank $173805$fa$204901$a$\_3$

$\%$

Identify the most successful region according to the profit margin.

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

The method used to evaluate the performance of the divisions should be reevaluated.

A better divisional performance measure would be the rate of return on investment $($income from operations divided by divisional assets$).$

A better divisional performance measure would be the residual income $($income from operations less a minimal return on divisional assets$).$

None of these choices would be included.

All of these choices $($a$,$ b & c$)$ would be included.