Trans-Continental 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?b. Correct the divisional income statements, using the activity bases provided above in revising the service departmentcharges.

Trans-Continental Airlines, Inc. Divisional Income Statements For the Year Ended June 30, 2010 Passenger Division Cargo Division Revenues Operating expenses Income from operations before service department charges Less service department charges: Training Flight scheduling Reservations Income from operations S1,400,000 $1,400,000 950.000 1200.000 $ 450,000 $ 200,000 $ 80,000 S 80,000 105.000 260.000 105.000 $ 190.000