Red Line 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 $862,000 Revenues-West 1,036,000 Revenues-Central 1,890,000 Operating Expenses-East 563,600 621,840 Operating Expenses-West Operating Expenses-Central 1,167,900 Corporate Expenses-Shareholder Relations 150.000 Corporate Expenses-Customer Support 360,000 Corporate Expenses-Legal 252,000 General Corporate Officers Salaries 274,500 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 an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered: East West Central Number of customer contacts 5,000 6,000 9,000 Number of hours billed 1,400 2,000 2,200 Required: 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West and Central 2. Identify the most successful division 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? What is a major weakness of the present method? Red Line 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 $862,000 Revenues-West 1,036,000 Revenues-Central 1,890,000 Operating Expenses-East 563,600 621,840 Operating Expenses-West Operating Expenses-Central 1,167,900 Corporate Expenses-Shareholder Relations 150.000 Corporate Expenses-Customer Support 360,000 Corporate Expenses-Legal 252,000 General Corporate Officers Salaries 274,500 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 an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered: East West Central Number of customer contacts 5,000 6,000 9,000 Number of hours billed 1,400 2,000 2,200 Required: 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West and Central 2. Identify the most successful division 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? What is a major weakness of the present method
