Assume you are the department B manager for Marleys Manufacturing. Marleys operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only to department B (they have no outside sales). After calculating the operating income in dollars and operating income in percentage, analyze the following financial information to determine costs that may need further investigation.

MARLEY'S MANUFACTURING

		Month Ending August 31, 2018
					Dept A		Dept B
Sales				$22,000		$51,000
Cost of goods sold				10,560		26,520
Gross profit				$11,440		$24,480
Utility expenses				1,000		3,200
Wages expense				5,500		10,200
Costs allocated from corporate				2,200		15,000
Total expenses				$8,700		$28,400
Operating income/(loss) $				$2,740		-$3,920.00
Operating income/(loss) %				12.45%		-7.68%

Which of these costs may need further investigation? Why? (Hint: It may be helpful to perform a vertical analysis.)

Chapter 9 A6

As manager of department B in Marleys Manufacturing, based on the costs you identified in the previous exercise for further research, how does this impact the financial performance of your department, and what might be some questions you want to ask or solutions you might propose to Marleys management?

Chapter 9 A7

Based on your research of the market in the previous exercises, you have determined the market price for the items your department purchase is 15% below what you are being charged by department A of Marleys Manufacturing. How would you view this as a manager? What steps could you take to solve this discrepancy? What alternatives would you consider, assuming you had control over purchasing decisions?

Chapter 9 A8

Using the information in the previous exercises about Marley's Manufacturing, determine the operating income for department B, assuming department A sold department B 1,000 units during the month and department A reduces the selling price to the market price.