Clingstone Peach manufactures bottles in its glass Division A, which are then transferred to its packaging Division B. In the upcoming month, 290,000 bottles will be transferred to Division B from Division A, where they are filled and then sold at $7.80 per bottle. The bottles can be sold from Division A to other bottlers at $5.80 per bottle. The costs provided relate to total manufacturing budgeted costs for the 290,000 bottles

Cost Data:

Division A: Division B:

Total Variable Costs : $87,000 Total Variable Costs:$75,400

Total Fixed Costs: $250,000 Total Fixed Costs: $147,900

Total Costs: $337,000 Total Costs: $233,300

The operating income for Division A and Division B under the market price transfer-pricing method are provided:

DIVISION A: Division B:

Revenue : $1,682,000 Revenue : $2,262,000

Variable Costs: $87,000 Transferred-In Costs $1,682,000

Fixed Costs: $250,000 Variable Costs : $75,400

Division Operating Income $1,345,000 Fixed Costs : $147,900

Division Operating Income $356,700

Required:

1) Calculate the operating Income for division A using 106% of manufacturing costs as the transfer price

2) Calculate the operating income for Division A using the 106% of market value as the transfer price

3) If bonuses are calculated at 6% of operating income, what method will the manager of Division A prefer?

4) Comment on the 106% of manufacturing costs compared to the $5.80 market value price. What impacts on behaviours or attitudes might occur within divisions if the company switches from the market value to the 106% of manufacturing costs?

REQ 4 is needed;

first blank options: Greater than, lower than, same as

Second Blank: Boost, Fall

Third: higher, lower

Fourth: less, more

fifth: better, worse

sixth: opposite, same

seventh: stay with the company, split and sell to outside market

Requirement 4. Comment on the 106% of manufacturing costs compared to the $5.80 market value transfer price. What impacts on behaviours or attitudes might occur within divisions if the company switches from market value to 106% of manufacturing cost? The 106% of manufacturing cost transfer price is V the $5.80 market value transfer price under the market value method. Division B could see a V in morale due to a V operating income or V emphasis on minimizing costs and improving revenues as the division would look V due to changing to the market value method. The might happen with Division A if the market value method is used. Division A may decide to REQUIRED 1) Calculate operating Income for Division A using 106% of manufacturing costs as the transfer price _ Tetai manufacturing costs x 96 at mfg cost = transfer price _ = 337.000 x 106% = 5357.220 __ ___ Revenue $357,220.00 Variable Cost 587,000 Fixed Cost | 250,000 Division Operating Income $20,220.00 2) Calculate the operating inlcome for Division A using the 106 96 of market value as the transfer price Division A Revenue x 96 of mfg. Costs = Transfer price = 51532000 x 106% = 5 1,732,920 _ Revenue _ 5 1,732,920 _= Variable Cost 537,000 __ Fixed Cost _ 250.000 __ Division Operating income 5 1,445,920 __ 3) If bonuses are calculated at 6% of operating income, what method will the division manager of A prefer? The manager of division A would prefer the 106% of market value method because the division operating income would be greater with this method