Simmons Bedding Company Manufactures an Array of Bedding-Related Products, Including

question 100

Essay

Simmons Bedding Company manufactures an array of bedding-related products, including pillows. The Cover Division of Simmons makes covers, while the Assembly Division of the company produces finished pillows. The covers can be sold separately for $10.00 a piece, while the pillows sell for $12.00 per unit. For performance-evaluation purposes, these two divisions are treated as investment centers. Financial results from the most recent accounting period are as follows:
Required:
1. What is the operating income for each of the two divisions and for the company as a whole? (Use market value as the transfer price.)
2. Do you think each of the two divisional managers is happy with this transfer-pricing method? Explain.

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Definitions:

Night Terrors

A sleep disorder causing feelings of terror or dread, commonly occurring in children, which can lead to screaming, flailing, and even sleepwalking during sleep.

Hypersomnia

Disorder of falling asleep at inappropriate times, or a difficulty staying awake.

Lucid Dreams

Dreams in which the dreamer is aware that they are dreaming and may have some control over the dream's content, narrative, and environment.

Hypnogogic Hallucinations

Vivid sensory experiences that occur at the onset of sleep, often involving visual, auditory, or tactile sensations.