Management of Great Springs Bottled Water Company has asked you, the controller, to develop a transfer...

  

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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 $0.62 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. Sales Cost of goods sold Gross profit Expenses: Fuel/utility expense Wages expense Costs allocated from corporate Total expenses Operating income/(loss) in dollars Operating income/(loss) in percentage Sales Great Springs Bottled Water Company Income Statement (Cost-based) Month Ending August 31, 20xx Cost of goods sold Gross profit Expenses: Fuel/utility expense Transportation 89,305 $ $16,000 43,080 17,237 $76,317 Great Springs Bottled Water Company Income Statement (Market-based) Month Ending August 31, 20xx Transportation 89,305 % $16,000 $ Bottling $285,000 $3,200 57,300 14,000 $74,500 Bottling $285,000 $3,200 % Wages expense Costs allocated from corporate Total expenses Operating income/(loss) in dollars Operating income/(loss) in percentage Sales Cost of goods sold Gross profit Expenses: Fuel/utility expense 43,080 17,237 $76,317 Wages expense Costs allocated from corporate Total expenses Great Springs Bottled Water Company Income Statement (Negotiated) Month Ending August 31, 20xx % Transportation 89,305 $16,000 43,080 17,237 $76,317 $ % 57,300 14,000 $74,500 Bottling $285,000 $3,200 57,300 14,000 $74,500 % Operating income/(loss) in dollars. Operating income/(loss) in percentage 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 $0.62 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. Sales Cost of goods sold Gross profit Expenses: Fuel/utility expense Wages expense Costs allocated from corporate Total expenses Operating income/(loss) in dollars Operating income/(loss) in percentage Sales Great Springs Bottled Water Company Income Statement (Cost-based) Month Ending August 31, 20xx Cost of goods sold Gross profit Expenses: Fuel/utility expense Transportation 89,305 $ $16,000 43,080 17,237 $76,317 Great Springs Bottled Water Company Income Statement (Market-based) Month Ending August 31, 20xx Transportation 89,305 % $16,000 $ Bottling $285,000 $3,200 57,300 14,000 $74,500 Bottling $285,000 $3,200 % Wages expense Costs allocated from corporate Total expenses Operating income/(loss) in dollars Operating income/(loss) in percentage Sales Cost of goods sold Gross profit Expenses: Fuel/utility expense 43,080 17,237 $76,317 Wages expense Costs allocated from corporate Total expenses Great Springs Bottled Water Company Income Statement (Negotiated) Month Ending August 31, 20xx % Transportation 89,305 $16,000 43,080 17,237 $76,317 $ % 57,300 14,000 $74,500 Bottling $285,000 $3,200 57,300 14,000 $74,500 % Operating income/(loss) in dollars. Operating income/(loss) in percentage 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. %

Answer rating: 100% (QA)

Step 1 Income Statement It is the statement which is prepared to judge the financial performance of ... View the full answer