Answered: Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West (W) regions, as profit centers. The chief executive officer (CEO)…

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	$1,057,300
Revenues—S Region	1,215,200
Revenues—W Region	2,257,000
Operating Expenses—N Region	670,000
Operating Expenses—S Region	723,200
Operating Expenses—W Region	1,364,900
Corporate Expenses—Dispatching	623,500
Corporate Expenses—Equipment Management	152,000
Corporate Expenses—Treasurer’s	160,800
General Corporate Officers’ Salaries	355,100

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	5,400		6,500	9,600
Number of railroad cars in inventory	1,000		1,500	1,300

Required:

Question Content Area

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 CompanyDivisional Income StatementsFor the Quarter Ended December 31

	North	South	West
Revenues	$fill in the blank 1b6b6d029078060_1	$fill in the blank 1b6b6d029078060_2	$fill in the blank 1b6b6d029078060_3
Operating expenses	fill in the blank 1b6b6d029078060_4	fill in the blank 1b6b6d029078060_5	fill in the blank 1b6b6d029078060_6
Income from operations before service department charges	$fill in the blank 1b6b6d029078060_7	$fill in the blank 1b6b6d029078060_8	$fill in the blank 1b6b6d029078060_9
Less service department charges:
Dispatching	$fill in the blank 1b6b6d029078060_10	$fill in the blank 1b6b6d029078060_11	$fill in the blank 1b6b6d029078060_12
Equipment Management	fill in the blank 1b6b6d029078060_13	fill in the blank 1b6b6d029078060_14	fill in the blank 1b6b6d029078060_15
Total service department charges	$fill in the blank 1b6b6d029078060_16	$fill in the blank 1b6b6d029078060_17	$fill in the blank 1b6b6d029078060_18
Income from operations	$fill in the blank 1b6b6d029078060_19	$fill in the blank 1b6b6d029078060_20	$fill in the blank 1b6b6d029078060_21

Question Content Area

2. What is the profit margin of each division? Round to one decimal place.

Region	Profit Margin
North Region	fill in the blank f8a59801d02af9e_1%
South Region	fill in the blank f8a59801d02af9e_2%
West Region	fill in the blank f8a59801d02af9e_3%

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?

The method used to evaluate the performance of the divisions should be reevaluated.
A better divisional performance measure would be the rate of return on investment (income from operations divided by divisional assets).
A better divisional performance measure would be the residual income (income from operations less a minimal return on divisional assets).
None of these choices would be included.
All of these choices (a, b & c) would be included.