Midwest reports assets in each divisloh as $48,500 18, 950 15, 650 3, 250 Bus Charters Lodging Concerts Ticket services Required: a. Using the retail values for transfer pricing for segment reporting purposes, what are the operating profits for each Midwest division b. What are the operating profits for each Midwest division using the differential cost basis for pricing transfers? c-1. Rank each division by ROI using the transfer pricing methods in requirement (a). c-2. Rank each division by ROI using the transfer pricing methods in requirement (b). Complete this question by entering your answers in the tabs below.
Midwest reports assets in each divisloh as $48,500 18, 950 15, 650 3, 250 Bus Charters Lodging Concerts Ticket services Required: a. Using the retail values for transfer pricing for segment reporting purposes, what are the operating profits for each Midwest division b. What are the operating profits for each Midwest division using the differential cost basis for pricing transfers? c-1. Rank each division by ROI using the transfer pricing methods in requirement (a). c-2. Rank each division by ROI using the transfer pricing methods in requirement (b). Complete this question by entering your answers in the tabs below.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
![Problem 15-49 (Algo) 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).
BUS
Charters
$11,700
7,950
Ticket
Revenues
Costs
Lodging Concerts Services
$4,520
3,360
$5,400
3,550
$1,600
1,500
Bus Charters Division participates in a frequent guest program with Lodging Division. During the past year, Bus Charters reported that
it traded lodging award coupons for travel that had a retail value of $1.3 million, assuming that the travel was redeemed at full fares.
Concerts Division offered 20 percent discounts to Midwest's bus passengers and lodging guests. These discounts to bus passengers
were estimated to have a retail value of $360,000. Midwest's lodging guests redeemed $130,000 in concert discount coupons.
Midwest's hotels also provided rooms for Bus Charters's employees (drivers and guides). The value of the rooms for the year was
$660,000.
Ticket Services Division sold chartered tours for Bus Charters valued at $200,000 for the year. This service for intracompany lodging
was valued at $110,000. It also sold concert tickets for Concerts; tickets 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 allocated 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 price, the value would be $250,000 instead of $1.3 million. Bus Charters's
controller mnade a similar argument concerning the concert discount coupons. If the differential cost basis were used for the concert
coupons, the transfer price would be $54,000 instead of the $360,000.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F846731f5-07d9-436a-9c82-4241ea515dde%2Fc4efe183-5d63-44f2-b714-14eda47236d2%2Fnozryb_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Problem 15-49 (Algo) 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).
BUS
Charters
$11,700
7,950
Ticket
Revenues
Costs
Lodging Concerts Services
$4,520
3,360
$5,400
3,550
$1,600
1,500
Bus Charters Division participates in a frequent guest program with Lodging Division. During the past year, Bus Charters reported that
it traded lodging award coupons for travel that had a retail value of $1.3 million, assuming that the travel was redeemed at full fares.
Concerts Division offered 20 percent discounts to Midwest's bus passengers and lodging guests. These discounts to bus passengers
were estimated to have a retail value of $360,000. Midwest's lodging guests redeemed $130,000 in concert discount coupons.
Midwest's hotels also provided rooms for Bus Charters's employees (drivers and guides). The value of the rooms for the year was
$660,000.
Ticket Services Division sold chartered tours for Bus Charters valued at $200,000 for the year. This service for intracompany lodging
was valued at $110,000. It also sold concert tickets for Concerts; tickets 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 allocated 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 price, the value would be $250,000 instead of $1.3 million. Bus Charters's
controller mnade a similar argument concerning the concert discount coupons. If the differential cost basis were used for the concert
coupons, the transfer price would be $54,000 instead of the $360,000.
![Midwest reports assets in each division as follows (dollars in thousands).
Bus Charters
Lodging
Concerts
Ticket Services
$48,500
18,950
15,650
3,250
Required:
a. Using the retaill values for transfer pricing for segment reporting purposes, what are the operating profits for each Midwest division?
b. What are the operating profits for each Midwest division using the differential cost basis for pricing transfers?
c-1. Rank each division by ROI using the transfer pricing methods in requirement (a).
c-2. Rank each division by ROI using the transfer pricing methods in requirement (b).
Complete this questlon by entering your answers in the tabs below.
Req A
Req B
Req C1
Req C2
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.)
Bus
Charters
Ticket
Services
Lodging
Concerts
Total revenues
Total costs
Operating profits](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F846731f5-07d9-436a-9c82-4241ea515dde%2Fc4efe183-5d63-44f2-b714-14eda47236d2%2F01rkp2h_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Midwest reports assets in each division as follows (dollars in thousands).
Bus Charters
Lodging
Concerts
Ticket Services
$48,500
18,950
15,650
3,250
Required:
a. Using the retaill values for transfer pricing for segment reporting purposes, what are the operating profits for each Midwest division?
b. What are the operating profits for each Midwest division using the differential cost basis for pricing transfers?
c-1. Rank each division by ROI using the transfer pricing methods in requirement (a).
c-2. Rank each division by ROI using the transfer pricing methods in requirement (b).
Complete this questlon by entering your answers in the tabs below.
Req A
Req B
Req C1
Req C2
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.)
Bus
Charters
Ticket
Services
Lodging
Concerts
Total revenues
Total costs
Operating profits
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