Corrections to Support Department Allocations for a Service Company

Rocky Mountain Airlines Inc. has two divisions organized as profit centers, the Passenger Division and the Cargo Division. The following divisional income statements were prepared:

Rocky Mountain Airlines Inc.

Divisional Income Statements

For the Year Ended December 31, 20Y9

Passenger

Division Cargo

Division

Revenues $4,200,000 $4,200,000

Operating expenses (2,700,000) (3,500,000)

Operating income before support department allocations $1,500,000 $700,000

Support department allocations:

Training $(180,000) $(180,000)

Flight scheduling (275,000) (275,000)

Reservations (375,000) (375,000)

Total support department allocations $(830,000) $(830,000)

Operating income (loss) $670,000 $(130,000)

The support department allocation rates for the support department costs were based on revenues. Because the revenues of the two divisions were the same, the support department allocations to each division were also the same.

The following additional information is available:

Passenger

Division Cargo

Division Total

Number of personnel trained 600 200 800

Number of flights 1,000 1,500 2,500

Number of reservations requested 30,000 0 30,000

Question Content Area

a. Does the operating income (loss) for the two divisions accurately measure performance? Explain.

The reported operating income

accurately measure performance because the support department charges are based on

. Revenues

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

Question Content Area

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". Round your interim calculations to two decimal places, if required.

Rocky Mountain Airlines Inc.

Divisional Income Statements

For the Year Ended December 31, 20Y9

Passenger Division Cargo Division

$- Select -

$- Select -

- Select -

- Select -

Operating income before support department allocations $fill in the blank 809542fb0071ff8_7

$fill in the blank 809542fb0071ff8_8

Support department allocations:

blank $- Select -

blank $- Select -

blank - Select -

blank - Select -

blank - Select -

blank - Select -

Total support department allocations blank $fill in the blank 809542fb0071ff8_18

blank $fill in the blank 809542fb0071ff8_19

$- Select -

$- Select -

Check My Work3 more Check My Work uses remaining.

Corrections to Support Department Niocations for a Service Compont each divisibh nere aso the mane Tha following additional infermation is acailable: a. Does the operating incoma (loss) for the twe dvitisns accurately mealure perfotmancel taplain. The follewing-additional intermation is availablec The tesortes oserating income sccuracely messure berformonon becauje the support ospartment charges are boted of Pevennues accociated with the proftc center manager's use of the supoert depertment services