Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 49

Profit center responsibility reporting for a service company
Thomas Railroad Company organizes its three divisions, the North (N), South (S), and West CW) 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, 2016:

The company operates three service departments: die Dispatching Department, the Equipment Management Department, and the Treasurer's Department. The Dispatching Department manages the scheduling and releasing of completed trains. The Equipment Management Department manages the railroad cats inventories. 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:

Instructions
1. Prepare quarterly income statements showing income from operations for the three regions. Use three column headings: North, South, and West.
2. Identify the most successful region according to the profit margin.
3. Provide a recommendation to the CEO for a better method for evaluating the performance of the regions. In your recommendation, identify the major weakness of the present method.