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Profit center responsibility reporting for a service company Instructions Quarterly Income Statements Instructions Red Line Railroad Inc. has three regional divisions organized 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-East $ 878,000 Revenues-West 1,042,000 1,880,000 563,600 619,680 1,172,940 Revenues-Central Operating Expenses-East Operating Expenses --West Operating Expenses - Central Corporate Expenses-Shareholder Relations Corporate Expenses --Customer Support Corporate Expenses --Legal General Corporate Officers' Salaries 155,000 333,000 233,100 278,500 The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company's point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an The company operates three service departments: Shareholder Relations, Customer Support, and Legal. The Shareholder Relations Department conducts a variety of services for shareholders of the company. The Customer Support Department is the company's point of contact for new service, complaints, and requests for repair. The department believes that the number of customer contacts is an activity base for this work. The Legal Department provides legal services for division management. The department believes that the number of hours billed is an activity base for this work. The following additional information has been gathered: East West Central 4,500 5,500 8,500 Number of customer contacts Number of hours billed 1,350 2,100 2,100 Required: 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column headings: East, West, and Central. 2. Identify the most successful division according to the protit margin. Enter percentage rounded two decimal places (e.g. 0.22547 is 22.55%). 3. What would you include in a recommendation to the CEO for a better method for evaluating the performance of the divisions? What is a major weakness of the present method? Quarterly Income Statements 1. Prepare quarterly income statements showing income from operations for the three divisions. Use three column head East, West, and Central Red Line Railroad Inc. Divisional Income Statements For the Quarter Ended December 31 East 1 West Central 2 Revenues 3 Operating expenses 4 Income from operations before service department charges s Service department charges 6 Customer Support 7 Legal Total service department charges 9 Income from operations 8 2. Compute the profit margin for each division. Enter percentage rounded two decimal places (e.g. 22547 is 22.55%). Division Profit Margin % East Division West Division Central Division % % Now identify the most successful division according to the profit margin

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