Accounting 26th Edition by Carl Warren ,Jim Reeve ,Jonathan Duchac

Exercise 36

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

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:

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.