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

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.