Corrections to Service Department Allocations for a Service Company

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, 20Y9
		Passenger Division				Cargo Division
Revenues				$2,356,000				$2,356,000
Operating expenses				1,907,190				2,125,940
Income from operations before service department allocations				$448,810				$230,060
Less service department cost allocations:
	Training	$101,200				$101,200
	Flight scheduling	85,885				85,885
	Reservations	114,100		301,185		114,100		301,185
Income from operations				$147,625				$(71,125)

The service department allocations rate for the service department costs was based on revenues. Because the revenues of the two divisions were the same, the service department allocations to each division were also the same.

The following additional information is available:

	Passenger Division		Cargo Division		Total
Number of personnel trained	330		130		460
Number of flights	370		520		890
Number of reservations requested	16,300		0		16,300

Question Content Area

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

The reported income from operations

doesdoes not

accurately measure performance because the service department allocations are based on

expensesrevenues

. Revenues

areare not

associated with the profit center managers use of the service department services.

Question Content Area

b. Correct the divisional income statements, using the cost drivers provided in revising the service department cost allocations. If an amount box does not require an entry, leave it blank. Do not round your interim calculations.

Wild Sun Airlines Inc. Divisional Income Statements For the Year Ended December 31, 20Y9

		Passenger Division		Cargo Division
Cost of goods soldGross profitOperating expensesRevenuesTraining		$- Select -		$- Select -
Cost of goods soldFlight schedulingIncome from operationsOperating expensesReservations		- Select -		- Select -
Income from operations before service department allocations		$fill in the blank 04cfb2fd807006e_7		$fill in the blank 04cfb2fd807006e_8
Less service department cost allocations:
Cost of goods soldIncome from operationsOperating expensesRevenuesTraining	$- Select -		$- Select -
Cost of goods soldFlight schedulingIncome from operationsOperating expensesRevenues	- Select -		- Select -
Cost of goods soldLoss from operationsOperating expensesReservationsRevenues	- Select -	- Select -	- Select -	- Select -
Cost of goods soldGross profitIncome from operationsIncome from operations before service department allocationsLoss from operations		$- Select -		$- Select -