Management of Great Springs Bottled Water Company has asked you, the controller, to develop a transfer pricing system for the company. The Transportation Department of the company sells all of its product to the Bottling Department of the company. Thus the Transportation Department's sales become the Bottling Department's cost of goods sold. In order to determine an optimal transfer pricing system, management would like you to demonstrate what an income statement would look like under a cost, market, and negotiated transfer pricing structure. These various transfer prices are listed below. Cost-based $0.61 Market-based $0.74 Negotiated $0.70 Gallons transferred 277,000 Prepare an income statement for each of the transfer prices by filling in the missing numbers in the provided income statement based on each transfer price and calculate the operating income/loss percentage. Round your answers to the nearest whole number. Great Springs Bottled Water Company Income Statement (Cost-based) Month Ending August 31, 20xx Transportation Bottling Sales $fill in the blank 1 $285,000 Cost of goods sold 87,864 fill in the blank 2 Gross profit $fill in the blank 3 $fill in the blank 4 Expenses: Fuel/utility expense $16,000 $3,200 Wages expense 43,080 57,300 Costs allocated from corporate 17,235 15,000 Total expenses $76,315 $75,500 Operating income/(loss) in dollars $fill in the blank 5 $fill in the blank 6 Operating income/(loss) in percentage fill in the blank 7 % fill in the blank 8 % Great Springs Bottled Water Company Income Statement (Market-based) Month Ending August 31, 20xx Transportation Bottling Sales $fill in the blank 9 $285,000 Cost of goods sold 87,864 fill in the blank 10 Gross profit $fill in the blank 11 $fill in the blank 12 Expenses: Fuel/utility expense $16,000 $3,200 Wages expense 43,080 57,300 Costs allocated from corporate 17,235 15,000 Total expenses $76,315 $75,500 Operating income/(loss) in dollars $fill in the blank 13 $fill in the blank 14 Operating income/(loss) in percentage fill in the blank 15 % fill in the blank 16 % Great Springs Bottled Water Company Income Statement (Negotiated) Month Ending August 31, 20xx Transportation Bottling Sales $fill in the blank 17 $285,000 Cost of goods sold 87,864 fill in the blank 18 Gross profit $fill in the blank 19 $fill in the blank 20 Expenses: Fuel/utility expense $16,000 $3,200 Wages expense 43,080 57,300 Costs allocated from corporate 17,235 15,000 Total expenses $76,315 $75,500 Operating income/(loss) in dollars $fill in the blank 21 $fill in the blank 22 Operating income/(loss) in percentage fill in the blank 23 % fill in the blank 24 % Which of the following statements best describes your results? a. The operating income of the transportation division will be higher than the operating income of the bottling division under all three transfer pricing systems. b. The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and market-based transfer pricing systems only. c. The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and negotiated transfer pricing systems only. d. The operating income of the transportation division will be higher than the operating income of the bottling division under the negotiated and market-based transfer pricing systems only.

Management of Great Springs Bottled Water Company has asked you, the controller, to develop a transfer pricing system for the company. The Transportation Department of the company sells all of its product to the Bottling Department of the company. Thus the Transportation Department's sales become the Bottling Department's cost of goods sold. In order to determine an optimal transfer pricing system, management would like you to demonstrate what an income statement would look like under a cost, market, and negotiated transfer pricing structure. These various transfer prices are listed below. Cost-based $0.61 Market-based $0.74 Negotiated $0.70 Gallons transferred 277,000 Prepare an income statement for each of the transfer prices by filling in the missing numbers in the provided income statement based on each transfer price and calculate the operating income/loss percentage. Round your answers to the nearest whole number. Great Springs Bottled Water Company Income Statement (Cost-based) Month Ending August 31, 20xx Transportation Bottling Sales $fill in the blank 1 $285,000 Cost of goods sold 87,864 fill in the blank 2 Gross profit $fill in the blank 3 $fill in the blank 4 Expenses: Fuel/utility expense $16,000 $3,200 Wages expense 43,080 57,300 Costs allocated from corporate 17,235 15,000 Total expenses $76,315 $75,500 Operating income/(loss) in dollars $fill in the blank 5 $fill in the blank 6 Operating income/(loss) in percentage fill in the blank 7 % fill in the blank 8 % Great Springs Bottled Water Company Income Statement (Market-based) Month Ending August 31, 20xx Transportation Bottling Sales $fill in the blank 9 $285,000 Cost of goods sold 87,864 fill in the blank 10 Gross profit $fill in the blank 11 $fill in the blank 12 Expenses: Fuel/utility expense $16,000 $3,200 Wages expense 43,080 57,300 Costs allocated from corporate 17,235 15,000 Total expenses $76,315 $75,500 Operating income/(loss) in dollars $fill in the blank 13 $fill in the blank 14 Operating income/(loss) in percentage fill in the blank 15 % fill in the blank 16 % Great Springs Bottled Water Company Income Statement (Negotiated) Month Ending August 31, 20xx Transportation Bottling Sales $fill in the blank 17 $285,000 Cost of goods sold 87,864 fill in the blank 18 Gross profit $fill in the blank 19 $fill in the blank 20 Expenses: Fuel/utility expense $16,000 $3,200 Wages expense 43,080 57,300 Costs allocated from corporate 17,235 15,000 Total expenses $76,315 $75,500 Operating income/(loss) in dollars $fill in the blank 21 $fill in the blank 22 Operating income/(loss) in percentage fill in the blank 23 % fill in the blank 24 % Which of the following statements best describes your results? a. The operating income of the transportation division will be higher than the operating income of the bottling division under all three transfer pricing systems. b. The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and market-based transfer pricing systems only. c. The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and negotiated transfer pricing systems only. d. The operating income of the transportation division will be higher than the operating income of the bottling division under the negotiated and market-based transfer pricing systems only.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 7PA: Management of Great Springs Bottled Water Company has asked you, the controller, to develop a...

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Cost-based	$0.61
Market-based	$0.74
Negotiated	$0.70
Gallons transferred	277,000

Prepare an income statement for each of the transfer prices by filling in the missing numbers in the provided income statement based on each transfer price and calculate the operating income/loss percentage. Round your answers to the nearest whole number.

Great Springs Bottled Water Company Income Statement (Cost-based) Month Ending August 31, 20xx
	Transportation	Bottling
Sales	$fill in the blank 1		$285,000
Cost of goods sold	87,864		fill in the blank 2
Gross profit	$fill in the blank 3		$fill in the blank 4
Expenses:
Fuel/utility expense	$16,000		$3,200
Wages expense	43,080		57,300
Costs allocated from corporate	17,235		15,000
Total expenses	$76,315		$75,500
Operating income/(loss) in dollars	$fill in the blank 5		$fill in the blank 6
Operating income/(loss) in percentage	fill in the blank 7	%	fill in the blank 8	%

Great Springs Bottled Water Company Income Statement (Market-based) Month Ending August 31, 20xx
	Transportation	Bottling
Sales	$fill in the blank 9		$285,000
Cost of goods sold	87,864		fill in the blank 10
Gross profit	$fill in the blank 11		$fill in the blank 12
Expenses:
Fuel/utility expense	$16,000		$3,200
Wages expense	43,080		57,300
Costs allocated from corporate	17,235		15,000
Total expenses	$76,315		$75,500
Operating income/(loss) in dollars	$fill in the blank 13		$fill in the blank 14
Operating income/(loss) in percentage	fill in the blank 15	%	fill in the blank 16	%

Great Springs Bottled Water Company Income Statement (Negotiated) Month Ending August 31, 20xx
	Transportation	Bottling
Sales	$fill in the blank 17		$285,000
Cost of goods sold	87,864		fill in the blank 18
Gross profit	$fill in the blank 19		$fill in the blank 20
Expenses:
Fuel/utility expense	$16,000		$3,200
Wages expense	43,080		57,300
Costs allocated from corporate	17,235		15,000
Total expenses	$76,315		$75,500
Operating income/(loss) in dollars	$fill in the blank 21		$fill in the blank 22
Operating income/(loss) in percentage	fill in the blank 23	%	fill in the blank 24	%

Which of the following statements best describes your results?

a.	The operating income of the transportation division will be higher than the operating income of the bottling division under all three transfer pricing systems.
b.	The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and market-based transfer pricing systems only.
c.	The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and negotiated transfer pricing systems only.
d.	The operating income of the transportation division will be higher than the operating income of the bottling division under the negotiated and market-based transfer pricing systems only.

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