Bedtime Bedding Company Manufactures Pillows Required:
Compute the Operating Income for Each Division and the the Assembly

question 84

Essay

Bedtime Bedding Company manufactures pillows.The Cover Division makes covers and the Assembly Division makes the finished products.The covers can be sold separately for $5.00.The pillows sell for $6.00.The information related to manufacturing for the most recent year is as follows:
$$\begin{array} { | l | r | } \hline \text { Cover Division manufacturing costs } & \$ 6,000,000 \\\hline \text { Sales of covers by Cover Division } & 4,000,000 \\\hline \text { Market value of covers transferred to Assembly } & 6,000,000 \\\hline \text { Sales of pillows by Assembly Division } & 7,200,000 \\\hline \text { Additional manufacturing costs of Assembly Division } & 1,500,000 \\\hline\end{array}$$ Required:
Compute the operating income for each division and the company as a whole.Use market value as the transfer price.Are all managers happy with this concept? Explain.

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Definitions:

Accrued Interest

Interest that has been earned but not yet received in cash or recorded as an asset on the balance sheet.

Note Receivable

A financial asset representing a written promise to receive a specific amount of money on a certain date or on demand.

Payment of Account

The process of settling a liability or an amount owed to a creditor, vendor, or supplier by making a cash or electronic payment.

Accounts Receivable Turnover

A financial ratio that measures how efficiently a company collects revenue from its credit sales, calculated as sales divided by average accounts receivable.