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 1 Passenger Division Cargo Division 2 Revenues $3,025,000.00 $3,025,000.00 3 Operating expenses 2,450,000.00 2,736,000.00 4 Income from operations before service department charges $575,000.00 $289,000.00 5 Less service department charges: 6 Training $125,000.00 $125,000.00 7 Flight scheduling 108,000.00 108,000.00 8 Reservations 151,200.00 151,200.00 9 Total service department charges $384,200.00 $384,200.00 10 Income from operations $190,800.00 $(95,200.00) 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 Required: 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. If there is no amount or an amount is zero, enter "0". Round your interim calculations to two decimal places, if required.

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 14.8E: Corrections to service department charges Panda Airlines Inc. has two divisions organized as profit...

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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

1		Passenger Division	Cargo Division
2	Revenues	$3,025,000.00	$3,025,000.00
3	Operating expenses	2,450,000.00	2,736,000.00
4	Income from operations before service department charges	$575,000.00	$289,000.00
5	Less service department charges:
6	Training	$125,000.00	$125,000.00
7	Flight scheduling	108,000.00	108,000.00
8	Reservations	151,200.00	151,200.00
9	Total service department charges	$384,200.00	$384,200.00
10	Income from operations	$190,800.00	$(95,200.00)

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

	Required:
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. If there is no amount or an amount is zero, enter "0". Round your interim calculations to two decimal places, if required.

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