Pront 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 5908,300 Revenues-- Region 1,130,300 Revenues-W Region 1,854,000 Operating Expenses- Region 575,600 Operating Expenses --S Region 673,000 Operating Expenses --W Region 1,121,200 Corporate Expenses--Dispatching 380,100 Corporate Expenses --Equipment Management 291,400 Corporate Expenses-Treasurer's 138,100 General Corporate Officers' Salaries 305,100 The company operates three service departments: the Dispatching Department, the Equipment Management Department, an 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 West 5,400 Number of scheduled trains Number of railroad cars in inventory Required: 4,500 1,200 8,200 1,600 1,900 North 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 West Revenues Operating expenses Income from operations before service department charges Service department charges: Dispatching Equipment Management Total service department charges QUI DIJI QUI VOU Income from operations 2. What is the profit margin of each division? Round to one decimal place. Pinyi 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 West South 5,400 Number of scheduled trains 4,500 8,200 1,600 Number of railroad cars in Inventory 1,200 1,900 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 Operating expenses Income from operations before service department charges Service department charges: Dispatching Equipment Management Total service department charges Income from operations Du QUO QUO Dio Doo 2. What is the profit margin of each division? Round to one decimal place. Profit Margin Region North Region South Region % % West Region % 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? 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
