Traxonia 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, 2016 870,000 1,034,000 1,880,000 565,700 621,360 1,174,660 150,000 350,000 284,000 281,000 Operating Expenses-East Operating Expenses-West Corporate Expenses-Shareholder Relations Corporate Expenses-Customer Support Corporate Expenses-Legal General Corporate omcers' Salaries 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 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 beleves that the number of hours billed is an activity base for this work. The tolowing additional information has been gathered: East West Central Number of customer contacts3,000 ,000 7,000 300 2,160 2,040 Number of hours billed Required: 1. Prepere quarteny income statements showing income from operations for the three divisions. Use three column headings East, West, and Central 2. Identify the most successful division accovding to the profit margin. 3. wnat would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions? 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central. TRAXONIA RAILROAD INC Divisional Income Statements For the Quarter Ended December 31, 2016 East Central West 2 Revenues Operating expenses Income from operations before sevice department charges 5 Less service department charges: 6Customer Support 7 Legal 8Total service department charges 9 Income from operations 2 Compute the profit margin for each division. Note: Enter percentage rounded two decimal places (eg. 22547 is 22.56%) Profit Margin Division East Division West Division Central Division Now identify the most successful division according to the profit marginY 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? A major weakness of the present method is that O a full year's income is needed for assessment O nonfinancial drivers are not identified ( the assets invested in each division are not considered. the service department charges are incorrectly allocated. O there is no weakness. The present method works well
