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 operating income 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 Revenues-S Region Revenues-W Region Operating Expenses-N Region Operating Expenses-S Region Operating Expenses-W Region Corporate Expenses-Dispatching Corporate Expenses-Equipment Management Corporate Expenses-Treasurer's General Corporate Officers' Salaries $1,001,400 1,230,600 2,065,700 634,600 732,400 1,249,200 464,600 275,600 152,300 336,300 The company operates three support departments: the 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 cars 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: North South West Number of scheduled trains 5,100 6,100 9,000 Number of railroad cars in inventory 1,300 2,100 1,800 Required: 1. Prepare quarterly income statements showing operating income 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 Line Item Description Revenues North South West Operating expenses Operating income before support department allocations Support department allocations: Dispatching Equipment Management Total support department allocations Operating income 2. What is the profit margin of each region? Round to one decimal place. Division North Region South Region West Region Profit Margin % % % 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 regions? a. The method used to evaluate the performance of the regions should be reevaluated. b. A better regional performance measure would be the return on investment (operating income divided by regional assets). c. A better regional performance measure would be the residual income (operating income less a minimal return on regional assets). d. None of these choices would be included. e. All of these choices (a, b & c) would be included.