Cross Country Transport Companyorganizes its three divisions, the Southeast, East, and Southregions, as profit centers. The chief executive officer (CEO)evaluates divisional performance, using income from operations as apercent of revenues. The following quarterly income andexpense accounts were provided from the trial balance as ofDecember 31, 2008:
- Revenues-SERegion $1,740,000
- Revenues ERegion 2,820,000
- Revenues-SRegion 2,340,000
- Operating Expenses-SERegion 1,134,400
- Operating Expenses-ERegion 2,097,300
- Operating Expense-SRegion 1,721,700
- CorporateExpenses-Dispatching 500,000
- CorporateExpenses-Equipment 525,000
- Corporate expenses-Treasurer's 375,000
- General Corporate Officers'Salaries 710,000
The company operates three servicedepartments: the dispatching Department, the equipment managementdepartment, and the Treasurer's department. Thedispatching department manages the scheduling and releasing ofcompleted trains. The Equipment management dept. manages therailroad cars inventories. It makes sure the right freightcars are at the right place at the right time. Thetreasurer's dept. conducts a variety of services for thecompany as a whole. The following additional information hasbeen gathered:
- Southeast East South
- Number of scheduledtrains 400 680 520
- Number of railroad cars ininventory 4,800 6,400 5,600
1.Prepare quarterly income statements showing income from operationsfor the three regions. Use three column heading: Southeast, East, and South.
2.Identify the most successful region according to the profitmargin.
Provide a recommendation to the CEO for a better method forevaluating the performance of the regions. In yourrecommendation, identify the major weakness of the presentmethod.