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, 20161 Passenger Division Cargo Division2 Revenues $3,045,000.00 $3,045,000.003 Operating expenses 2,425,000.00 2,748,000.004 Income from operations before service department charges $620,000.00 $297,000.005 Less service department charges:6 Training $126,900.00 $126,900.007 Flight scheduling 96,300.00 96,300.008 Reservations 151,200.00 151,200.009 Total service department charges $374,400.00 $374,400.0010 Income from operations $245,600.00 $(77,400.00)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 TotalNumber of personnel trained 320 220 540Number of flights 650 1,150 1,800Number of reservations requested 21,000 0 21,000Required: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. Wild Sun Airlines Inc. has two divisions organized

Wild Sun Airlines, Inc.

A. The income from operations for the two divisions does not accurately measure performance.  It was not based on the level of activity carried out in each division of Wild Sun Airlines Inc.

B. WILD SUN AIRLINES INC. Corrected Divisional Income Statements For the Year Ended December 31, 2016:

1                                                         Passenger Division    Cargo Division

2 Revenues                                            $3,045,000.00   $3,045,000.00

3 Operating expenses                            2,425,000.00      2,748,000.00

4 Income from operations before

 service department charges                $620,000.00       $297,000.00

5 Less service department charges:

6 Training                                                 $150,400.00       $103,400.00

7 Flight scheduling                                     69,550.00          123,050.00

8 Reservations                                          302,400.00          0.00

9 Total service department charges    $522,350.00      $226,450.00

10 Income from operations                     $97,650.00         $70,550.00)

Explanation:

a) Data and Calculations:

WILD SUN AIRLINES INC. Divisional Income Statements For the Year Ended December 31, 2016

1                                                         Passenger Division    Cargo Division

2 Revenues                                            $3,045,000.00   $3,045,000.00

3 Operating expenses                            2,425,000.00      2,748,000.00

4 Income from operations before

 service department charges                $620,000.00       $297,000.00

5 Less service department charges:

6 Training                                                 $126,900.00       $126,900.00

7 Flight scheduling                                      96,300.00           96,300.00

8 Reservations                                            151,200.00          151,200.00

9 Total service department charges      $374,400.00      $374,400.00

10 Income from operations                    $245,600.00       $(77,400.00)

Additional Data:

                                                 Passenger Division   Cargo Division  Total

Number of personnel trained                320                   220              540

Number of flights                                   650                  1,150            1,800

Number of reservations requested 21,000                     0            21,000

Activity-based costing rates:

                                       Total Costs    Total Activity   Rate

6 Training                     $253,800.00         540         $470 per personnel

7 Flight scheduling         192,600.00       1,800          $107 per flight

8 Reservations               304,400.00     21,000      $14.495 per reservation

Costs Allocation:

                          Passenger Division        Cargo Division              Total

Training costs   $150,400 ($470*320)    $103,400 ($470*220)  $253,800

Flight scheduling 69,550 ($107*650)       123,050 ($107*1,150)    192,600

Reservations      304,400 ($14.495 *21,000)                                 304,400

Total costs                                                                                     $750,800

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