# Corrections to service department charges for a service company Wild Sun Airliners 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 $3,025,000$3,025,000 Operating expenses 2,450,000 2,736,000 Income from operations before service department charges $575,000$289,000 Less service department charges: Training $125,000$125,000 Flight scheduling 108,000 108,000 Reservations 151,200 384,200 151,200 384,200 Income from operations $190,800$(95,200) 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 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.

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

### Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

#### Solutions

Chapter
Section
Chapter 24, Problem 24.8EX
Textbook Problem

## Corrections to service department charges for a service company Wild Sun Airliners 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   $3,025,000$3,025,000 Operating expenses   2,450,000   2,736,000 Income from operations before service department charges   $575,000$289,000 Less service department charges:         Training $125,000$125,000   Flight scheduling 108,000   108,000   Reservations 151,200 384,200 151,200 384,200 Income from operations   $190,800$(95,200)  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  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.

Expert Solution

(a)

To determine

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Service department charges: These are the indirect expenses incurred by profit center. These are charged for the services received by the department or division, based on the activity base of the service department.

To compare: The performance of P Division and C Division of Incorporation WSA, and explain if the income from operations as performance measure is accurate

### Explanation of Solution

The income from operations as provided by the divisional income statements is not correct because the number of reservations r...

Expert Solution

(b)

To determine

To prepare: The income statements for C Division and P Division

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