Temasec 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. Since 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:

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 above in revising the service department charges.

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Temasec Airlines, Inc. Divisional Income Statements For the Year Ended June 30, 2012 Passenger Division $2,100,000 Cargo Division $2,100,000 Revenues Operating expenses 1,700,000 1,900,000 $ 400,000 $ 200,000 Income from operations before service department charges Less service department charges: $ 87,500 $ 87,500 Training Flight scheduling 75,000 75,000 Reservations 105,000 267,500 105,000 267,500 $ 132,500 $ (67,500) Income from operations Passenger Division 250 Cargo Number of personnel trained Number of flights Number of reservations requested Division 100 420 Total 350 720 16,000 300 16,000