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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
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 $6,000,000 $4,000,000 Assembly Division $1,500,000 $7,200,000 Manufacturing costs of division Sales to external parties 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 likely to be happy with this approach? Explain
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