The 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 the division's performance using revenue from operations as a percentage of revenue. From the trial balance as of December 31, the following quarterly income and expense accounts were provided:

Income—Region N $912,100

Income—Region S 1,105,800

Income—W Region 1,975,400

Operating Expenses—Region N 578,000

Operating Expenses—Region S 658,100

Operating Expenses—W Region 1,194,600

Corporate Expenses—Office 470,400

Corporate Expenses—Team Management 214,500

Corporate Expenses—Treasurer 138,700

Salaries of the General Directors of the Corporation 306,300

The company operates three service departments:  

the Dispatch Department, the Equipment Management Department, and the Treasury Department. 

The Dispatch Department manages the scheduling and release of completed trains. The Equipment Management Department manages rail car inventories. He makes sure the right freight cars are in the right place at the right time. The Treasury Department performs a variety of services for the company as a whole.

 The following additional information has been collected:

                                                             North         South          west

Number of trains scheduled            4,900            5,900         8,800

Number of rail cars in inventory       800            1,300           1,200

Required:

1. Prepare quarterly income statements showing the results of operations for the three regions. Use three column headers: North, South, and West. 

2. What is the profit margin of each division? 

3. What would you include in a recommendation to the CEO about a better method for evaluating divisional performance?

a. The method used to evaluate the performance of the divisions must be reassessed.

b. A better measure of divisional performance would be the rate of return on investment (operating income divided by divisional assets).

C. A better measure of divisional performance would be residual income (income from operations minus a minimum return on divisional assets).

d. None of these options would be included.

e. All of these options (a, b and c) would be included.

Answer rating: 100% (QA)

Quarterly Income Statements bash Copy code North South West Revenue 912100 1105800 1975400 Operating ... View the full answer