Corrections to service department charges for a service company OBJ. 3 Wild Sun Airlines Inc. has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared:

Wild Sun Airlines Inc.

Divisional Income Statements For the Year Ended December 31, 2016 Passenger Division Cargo Division Revenues $3,025,000 $3,025,000 Operating expenses 2,450,000 2,736,000 Income from operations before service department charges $ 575,000 $ 289,000 Less service department charges:

Training $125,000 $125,000 Flight scheduling 108,000 108,000 Reservations 151,200 384,200 151,200 384,200 Income from operations $ 190,800 $ (95,200)

The service department charge rate for the service department costs was based on revenues. Because the revenues of the two divisions were the same, the service department charges to each division were also the same.
The following additional information is available:
Passenger Division Cargo Division Total Number of personnel trained 350 150 500 Number of flights 800 1,200 2,000 Number of reservations requested 20,000 0 20,000

a. Does the income from operations for the two divisions accurately measure performance? Explain.

b. Correct the divisional income statements, using the activity bases provided in revising the service department charges.