Train-X Railroad Company organizes its three divisions, the North (N), south (S), and West (W) regions, as profit centers. The chief executive officer (CEO) evaluate divisional performance, using income from operation as a percent of revenues. The following quarterly income and expense accounts were provided from the trial balance as of December 31, 2012:
Revenues-N Region …………………..…….. $ 2,625,000
Revenue –S Region ………………..………….. 3,940,000
Revenue – W Region …………………………... 3,562,500
Operating expenses-N Region ………………….. 1,856,250
Operating expense – S Region ………………….. 3,081,000
Operating Expenses-W Region ………………….. 2,525,625
Corporate Expenses-Dispatching ……………………180,000
Corporate expense – Equipment Management …... 1,110,000
Corporate Expenses-Treasure’s ……………………. 510,000
General Corporate Officers’ Salaries ………………. 960,000
The company operates three service 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 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 statement showing income from operations for the three regions. Use three column beadings: 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 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.