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 operating income as a percent of revenues. The following quarterly

income and expense accounts were provided from the trial balance as of December $31$:

The company operates three support 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:

Required:

Prepare quarterly income statements showing operating income 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 $31$

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

Profit Margin

North Region

$\%$

South Region

$\%$

West Region

$\%$

Identify the most successful region according to the profit margin.

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

a$.$ The method used to evaluate the performance of the regions should be reevaluated.

b$.$ A better regional performance measure would be the return on investment $($operating income divided by regional assets$).$

c$.$ A better regional performance measure would be the residual income $($operating income less a minimal return on regional assets$).$

d$.$ None of these choices would be included.

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