ch 9

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. 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. Gross profit $82,435 Expenses: Fuel/utility expense Wages expense Costs allocated from corporate Total expenses Operating income/(loss) in dollars Operating income/(loss) in percentage \begin{tabular}{rr} $14,000 & $3,200 \\ 43,090 & 57,200 \\ 17,237 & 15,000 \\ \hline$74,327 & $75,400 \\ \hline$% \end{tabular} Great Springs Bottled Water Company Income Statement (Market-based) Month Ending August 31, 20xx \begin{tabular}{lcc} \hline & Transportation & Bottling \\ \hline Sales & $287,000 \\ Cost of goods sold & $ \\ Gross profit & $ \end{tabular} Expenses: Fuel/utility expense Wages expense 43,09057,200 17 te nan Check My Work a. The operating income of the transportation division will be higher than the operating income of the bottlir division under all three transfer pricing systems