) Bedtime Bedding Company manufactures pillows. The Cover Division makes covers and the Assembly Division makes the finished pillows. The covers can be sold separately for $5.00. The pillows sell for $6.00. The information related to manufacturing for the most recent year is as follows:

Cover Division Assembly Division

Manufacturing costs of division $6,000,000 $1,500,000

Sales to external parties $4,000,000 $7,200,000

Market value of covers transferred from the Cover Division to the Assembly Division $6,000,000

Required:

a. Compute the operating income for each division and the company as a whole. Use market value as the transfer price.

b. Are all managers happy with this concept? Explain.

Randall Company makes and distributes outdoor play equipment. Last year sales were $4,800,000, operating income was $1,200,000, and the assets used were $6,000,000.

10) Return on sales, the efficiency component of return on investment (ROI), is:

A) 20%.

B) 80%.

C) 25%.

D) 125%.

11) Asset turnover, the productivity component of return on investment (ROI), is:

A) 20%.

B) 80%.

C) 25%.

D) 125%.

12) The return on investment (ROI) is:

A) 20%.

B) 80%.

C) 25%.

D) 125%.