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: RevenuesN Region $767,900 RevenuesS Region 934,600 RevenuesW Region 1,606,600 Operating ExpensesN Region 486,600 Operating ExpensesS Region 556,200 Operating ExpensesW Region 971,600 Corporate ExpensesDispatching 354,900 Corporate ExpensesEquipment Management 214,200 Corporate ExpensesTreasurers 116,800 General Corporate Officers Salaries 257,900

eBook Show Me How Print Item 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 $767,900 Revenues-S Region 934,600 Revenues-W Region 1,606,600 486,600 556,200 Operating Expenses-N Region Operating Expenses S Region Operating Expenses-W Region Corporate Expenses-Dispatching Corporate Expenses-Equipment Management 971,600 354,900 214,200 Corporate Expenses-Treasurer's 116,800 General Corporate Officers' Salaries 257,900 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 4,200 5,100 7,600 Number of railroad cars in inventory 1,300 2,000 1,800 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 767,900 934,600 1,606,600 Operating expenses 486,600 556,200 971,600 281,300 378,400 635,000 Income from operations before service department charges Less service department charges: 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 767,900 934,600 $ 1,606,600 Operating expenses 486,600 556,200 971,600 281,300 $ 378,400 635,000 Income from operations before service department charges Less service department charges: Dispatching Equipment Management Total service department charges $ Income from operations 2. What is the profit margin of each division? Round to one decimal place. Region Profit Margin 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