Chapter 14, Problem 14.8E

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.