Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883



Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Corrections to service department charges
Panda 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.

The following additional information is available

a.Does the operating income for the two divisions accurately measure performance?
b.Using service charge rates for service department charges, correct the divisional income statements.

To determine


Concept Introduction:

Operating Income is an income that measures the profit realized in the business operations, after deducting operating expenses as like salaries, interest, and cost of goods sold.

To find out:

Whether operating income for the two divisions are measuring the performance accurately or not.


The income from operations for the two divisions do not correctly measure performance. In this, the service department charge rate for its department cost based on revenues which are incorrect due to leading to undercharging or overcharging...

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