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. Cost-based $0.62 Market-based $0.73 Negotiated $0.69 Gallons transferred 279,000 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. Great Springs Bottled Water Company Income Statement (Cost-based) Month Ending August 31, 20xx Transportation Bottling Sales $287,000 Cost of goods sold 89,950 Gross profit Expenses: Fuel/utility expense $14,000 $3,300 Wages expense 43,080 57,200 Costs allocated from corporate 17,235 15,000 Total expenses $74,315 $75,500 Operating income/(loss) in dollars Operating income/(loss) in percentage % % Great Springs Bottled Water Company Income Statement (Market-based) Month Ending August 31, 20xx Transportation Bottling Sales $287,000 Cost of goods sold 89,950 Gross profit

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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.

Cost-based	$0.62
Market-based	$0.73
Negotiated	$0.69
Gallons transferred	279,000

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.

Great Springs Bottled Water Company Income Statement (Cost-based) Month Ending August 31, 20xx
	Transportation	Bottling
Sales			$287,000
Cost of goods sold	89,950
Gross profit
Expenses:
Fuel/utility expense	$14,000		$3,300
Wages expense	43,080		57,200
Costs allocated from corporate	17,235		15,000
Total expenses	$74,315		$75,500
Operating income/(loss) in dollars
Operating income/(loss) in percentage		%		%

Great Springs Bottled Water Company Income Statement (Market-based) Month Ending August 31, 20xx
	Transportation	Bottling
Sales			$287,000
Cost of goods sold	89,950
Gross profit
Expenses:
Fuel/utility expense	$14,000		$3,300
Wages expense	43,080		57,200
Costs allocated from corporate	17,235		15,000
Total expenses	$74,315		$75,500
Operating income/(loss) in dollars
Operating income/(loss) in percentage		%		%

Great Springs Bottled Water Company Income Statement (Negotiated) Month Ending August 31, 20xx
	Transportation	Bottling
Sales			$287,000
Cost of goods sold	89,950
Gross profit
Expenses:
Fuel/utility expense	$14,000		$3,300
Wages expense	43,080		57,200
Costs allocated from corporate	17,235		15,000
Total expenses	$74,315		$75,500
Operating income/(loss) in dollars
Operating income/(loss) in percentage		%		%

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