Corrections to Service Department Charges 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				$2,799,000				$2,799,000
Operating expenses				2,265,780				2,537,860
Income from operations before service department charges				$533,220				$261,140
Service department charges:
	Training			$160,000				$160,000
	Flight scheduling			76,630				76,630
	Reservations			117,000				117,000
	Total service department charges			$353,630				$353,630
Income from operations				$179,590				$(92,490)

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	360		140		500
Number of flights	330		460		790
Number of reservations requested	15,600		0		15,600

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

The reported income from operations _________ accurately measure performance because the service department charges are based on _______ . Revenues )__________ associated with the profit center managers use of the service department services.

b. Correct the divisional income statements, using the activity bases provided in revising the service department charges. If an amount box does not require an entry, leave it blank, or enter "0". Do not round your interim calculations.

Wild Sun Airlines Inc.
Divisional Income Statements
For the Year Ended December 31, 20Y9
		Passenger Division		Cargo Division
		$		$
Income from operations before service department charges		$		$
Service department charges:
		$		$
Total service department charges		$		$
		$		$