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 Revenues-S Region Revenues-W Region Operating Expenses-N Region Operating Expenses-S Region Operating Expenses-W Region $877,700 1,028,500 1,816,300 556,200 612,100 1,098,400 437,000 202,400 133,500 294,800 Corporate Expenses-Equipment Management Corporate Expenses-Treasurers General Corporate Officers' Salaries The company operates three service 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: North South Wes 4,800 1,200 1,800 1,600 Number of scheduled trains Number of railroad cars in inventory 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. 5,700 8,500 Thomas Railroad Company Divisional Income Statements For the Quarter Ended December 31 South West Operating expenses Income from operations before service department charges Service department charges: Total service department charges North South 4,800 5,700 8,500 1,200 1,800 1,600 West Number of scheduled trains Number of railroad cars in inventory 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 South North West Operating expenses Income from operations before service department charges Service department charges: Total service department charges Income from operations 2. What is the profit margin of each division? Round to one decimal place Region North Region South Region West Region Identify the most successful region according to the profit margin. Profit Margin 3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the 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 included. e. All of these choices (a, b & c) would be included. Previous Next Check My Work