Problem 15-44 Segment Reporting (LO 15-5) Midwest Entertainment has four operating divisions: Bus Charters, Lodging, Concerts, and Ticket Services. Each division is a separate segment for financial reporting purposes. Revenues and costs related to outside transactions were as follows for the past year (dollars in thousands Ticket Bus Charter Lodging Concerts Services Revenue $11,700 $5.500 4400 $1,650 Cool 8.000 3,570 1.550 Bus Charters Division participates in a frequent quest program with Lodging Division. During the past year, Bus Charters reported that it traded lodging award coupons for travel that had a real value of 13 million, assuming that the travel was redeemed fleres. Concerts Division offered 20 percent discounts to Midwear's bus passengers and lodging guests. These discounts to bus passengers were estimated to have retail value of $340,000. Midwest's lodging questa redeemed 5170,000 in concert discount coupons, Midwest's hotel so provided rooms for bus Chartere's employees (drivers and guides). The value of the rooms for the year was 5630,000 Ticket Services Division sold Chartered tours for Bus Charters valued at $200,000 for the year. This service for Intracompany lodging was valued at $100,000. It also sold concert tickets for Concerts ickets for Intracompany concert admission were valued at $54,000. While preparing all of these data for financial statement presentation, Lodging Division's controller stated that the value of the bus coupons should be based on their differential and opportunity costs, not on the full fare. This argument was supported because travel coupons are usually located to seats that would otherwise be empty or that are restricted similar to those on discount tickets. If the differential and opportunity costs were used for this transfer prion, the value would be $250,000 instead of $1.3 milion Bus Charter's controller made a similar argument concerning the concert discount coupons. If the differential com basis were used for the concert coupons, the transfer price would be $54.000 instead of the $340.000 Midwest reports assets in each division as follows (dollars in thousands Bus Charters Lodging Concerts Ticket Services $47.750 18,900 15,650 3,250 Required: a. Using the retail values for transfer pricing for segment reporting purposes, what are the operating profits for each Midwest division (Enter your answers in thousands of dollars.) B Lodging Concerts Ticket Services Total revenues Total costs Operating profits b. What are the operating profits for each Midwest division using the differential cost basis for pricing transfers? (Enter your answers in thousands of dollars.) Operating Profits Bus charters Lodging Concerts Ticket services c. Rank each division by ROI using the transfer pricing methods in requirements (a) and (b). (Round your answers to 2 decimal places.) For(a): % For (b): % %
