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$0.61Market-based$0.74Negotiated$0.70Gallons transferred279,000Prepare 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 CompanyIncome Statement (Cost-based)Month Ending August 31, 20xxGreat Springs Bottled Water CompanyIncome Statement (Market-based)Month Ending August 31, 20xxGreat Springs Bottled Water CompanyIncome Statement (Negotiated)Month Ending August 31, 20xxWhich of the following statements best describes your results?a.The operating income of the transportation division will be higher than the operating income of the bottling division under all three transfer pricing systems.b.The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and market-based transfer pricing systems only.c.The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and negotiated transfer pricing systems only.d.The operating income of the transportation division will be higher than the operating income of the bottling division under the negotiated and market-based transfer pricing systems only. Great Springs Bottled Water CompanyIncome Statement (Cost-based)Month Ending August 31, 20xxTransportationBottlingSales$286,000Cost of goods sold88,499Gross profitExpenses:Fuel/utility expense$15,000$3,100Wages expense43,09057,200Costs allocated from corporate17,23514,000Total expenses$75,325$74,300Operating income/(loss) in dollarsOperating income/(loss) in percentage%%Great Springs Bottled Water CompanyIncome Statement (Market-based)Month Ending August 31, 20xxTransportationBottlingSales$286,000Cost of goods sold88,499Gross profitExpenses:Fuel/utility expense$15,000$3,100Wages expense43,09057,200Costs allocated from corporate17,23514,000Total expenses$75,325$74,300Operating income/(loss) in dollarsOperating income/(loss) in percentage%0% Great Springs Bottled Water CompanyIncome Statement (Negotiated)Month Ending August 31, 20xxTransportationBottlingSales$286,000Cost of goods sold88,499Gross profit$Expenses:Fuel/utility expense$15,000$3,100Wages expense43,09057,200Costs allocated from corporate17,23514,000Total expenses$75,325$74,300Operating income/(loss) in dollars24Operating income/(loss) in percentage%0%Which of the following statements best describes your results?a. The operating income of the transportation division will be higher than the operating income of the bottling division under all three transfer pricing systems.b. The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and market-based transfer pricing systems only.c. The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and negotiated transfer pricing systems only.d. The operating income of the transportation division will be higher than the operating income of the bottling division under the negotiated and market-based transfer pricing systems only.

When one department of a company transfer goods to another department, the price at which goods are…

Answered: Management of Great Springs Bottled…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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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	$0.61
Market-based	$0.74
Negotiated	$0.70
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

Great Springs Bottled Water Company
Income Statement (Market-based)
Month Ending August 31, 20xx

Great Springs Bottled Water Company
Income Statement (Negotiated)
Month Ending August 31, 20xx

Which of the following statements best describes your results?

a.	The operating income of the transportation division will be higher than the operating income of the bottling division under all three transfer pricing systems.
b.	The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and market-based transfer pricing systems only.
c.	The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and negotiated transfer pricing systems only.
d.	The operating income of the transportation division will be higher than the operating income of the bottling division under the negotiated and market-based transfer pricing systems only.

Great Springs Bottled Water Company
Income Statement (Cost-based)
Month Ending August 31, 20xx
Transportation
Bottling
Sales
$286,000
Cost of goods sold
88,499
Gross profit
Expenses:
Fuel/utility expense
$15,000
$3,100
Wages expense
43,090
57,200
Costs allocated from corporate
17,235
14,000
Total expenses
$75,325
$74,300
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
$286,000
Cost of goods sold
88,499
Gross profit
Expenses:
Fuel/utility expense
$15,000
$3,100
Wages expense
43,090
57,200
Costs allocated from corporate
17,235
14,000
Total expenses
$75,325
$74,300
Operating income/(loss) in dollars
Operating income/(loss) in percentage
%
0%

Great Springs Bottled Water Company
Income Statement (Negotiated)
Month Ending August 31, 20xx
Transportation
Bottling
Sales
$286,000
Cost of goods sold
88,499
Gross profit
$
Expenses:
Fuel/utility expense
$15,000
$3,100
Wages expense
43,090
57,200
Costs allocated from corporate
17,235
14,000
Total expenses
$75,325
$74,300
Operating income/(loss) in dollars
24
Operating income/(loss) in percentage
%
0%
Which of the following statements best describes your results?
a. The operating income of the transportation division will be higher than the operating income of the bottling division under all three transfer pricing systems.
b. The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and market-based transfer pricing systems only.
c. The operating income of the transportation division will be higher than the operating income of the bottling division under the cost-based and negotiated transfer pricing systems only.
d. The operating income of the transportation division will be higher than the operating income of the bottling division under the negotiated and market-based transfer pricing systems only.

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