Answer:
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
