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Marley's Manufacturing Income Statement Month Ending August 31, 2018 Dept. A Dept. B Sales $22,000 $51,000 Cost of goods sold 10,560 48% 26,520 52% Gross profit $11,440 $24,480 Expenses: Utility expenses $1,000 5% $3,200 6% Wages expense 5,500 25% 10,200 20% Costs allocated from corporate 2,200 10% 15,000 29% Total expenses $8,700 $28,400 Operating income/(loss) in dollars $2,740 ($3,920) Operating income/(loss) in percentage 12% -8% Based on research of the market, you have determined the market price for the items your department purchase is 15% below what you are being charged by department A of Marley's Manufacturing. How would you view this as a manager? What steps could you take to solve this discrepancy? What alternatives would you consider, assuming you had control over purchasing decisions?

Marley's Manufacturing Income Statement Month Ending August 31, 2018 Dept. A Dept. B Sales $22,000 $51,000 Cost of goods sold 10,560 48% 26,520 52% Gross profit $11,440 $24,480 Expenses: Utility expenses $1,000 5% $3,200 6% Wages expense 5,500 25% 10,200 20% Costs allocated from corporate 2,200 10% 15,000 29% Total expenses $8,700 $28,400 Operating income/(loss) in dollars $2,740 ($3,920) Operating income/(loss) in percentage 12% -8% Based on research of the market, you have determined the market price for the items your department purchase is 15% below what you are being charged by department A of Marley's Manufacturing. How would you view this as a manager? What steps could you take to solve this discrepancy? What alternatives would you consider, assuming you had control over purchasing decisions?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Assume you are the department B manager for Marley's Manufacturing. Marley's operates under a cost-based transfer structure. Assume you receive the majority of your raw materials from department A, which sells only to department B (they have no outside sales). After calculating the operating income in dollars and operating income in percentage, analyze the following financial information to determine costs that may need further investigation.

Marley's Manufacturing
Income Statement
Month Ending August 31, 2018
Marley's Manufacturing Income Statement Month Ending August 31, 2018 Dept. A Dept. B Sales $22,000 $51,000 Cost of goods sold 10,560 48% 26,520 52% Gross profit $11,440 $24,480 Expenses: Utility expenses $1,000 5% $3,200 6% Wages expense 5,500 25% 10,200 20% Costs allocated from corporate 2,200 10% 15,000 29% Total expenses $8,700 $28,400 Operating income/(loss) in dollars $2,740 ($3,920) Operating income/(loss) in percentage 12% -8% Based on your research of the market, you have determined the market price for the items your department purchase is 15% below what you are being charged by department A of Marley's Manufacturing. How would you view this as a manager? What steps could you take to solve this discrepancy? What alternatives would you consider, assuming you had control over purchasing decisions? a. You could propose working with department A to review the production process. b. You could propose working with department A to review the transfer price. c. You might consider purchasing the items from an outside supplier. d. All of the above answers are correct.
Transcribed Image Text:Marley's Manufacturing Income Statement Month Ending August 31, 2018 Dept. A Dept. B Sales $22,000 $51,000 Cost of goods sold 10,560 48% 26,520 52% Gross profit $11,440 $24,480 Expenses: Utility expenses $1,000 5% $3,200 6% Wages expense 5,500 25% 10,200 20% Costs allocated from corporate 2,200 10% 15,000 29% Total expenses $8,700 $28,400 Operating income/(loss) in dollars $2,740 ($3,920) Operating income/(loss) in percentage 12% -8% Based on your research of the market, you have determined the market price for the items your department purchase is 15% below what you are being charged by department A of Marley's Manufacturing. How would you view this as a manager? What steps could you take to solve this discrepancy? What alternatives would you consider, assuming you had control over purchasing decisions? a. You could propose working with department A to review the production process. b. You could propose working with department A to review the transfer price. c. You might consider purchasing the items from an outside supplier. d. All of the above answers are correct.
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