Bubbling Springs,Inc

question 84

Essay

Bubbling Springs,Inc. ,produces bottled drinks.Division #1 acquires the water,adds carbonation,and sells it in bulk quantities to Division # 2 of Spring Waters and to outside buyers.Division # 2 buys carbonated water in bulk,adds flavoring,bottles it,and sells it.Last year,Division #1 produced 1,500,000 gallons,of which it sold 1,300,000 gallons to the Division # 2 and the remaining 200,000 gallons to outsiders for $0.40 per gallon.Division #2 processed the 1,300,000 gallons,which it sold for $1,500,000.Division #1's variable costs were $440,000 and its fixed costs were $120,000.The Division # 2 incurred an additional variable cost of $320,000 and $200,000 of fixed costs.Both divisions operated below capacity.
Required:
a.Prepare division income statements assuming the transfer price is at the external market price of $0.40 per gallon.
b.Repeat part a.assuming a negotiated transfer price of $0.30 per gallon is used.
c.Respond to the statement: "The choice of a particular transfer price is immaterial to the company as a whole."

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Definitions:

Telepathy

The supposed communication of thoughts or ideas through means other than the known senses, considered pseudoscience by mainstream science.

Extrasensory

Pertaining to perception or communication outside of the normal sensory processes, often referred to as ESP or sixth sense.

Perception

The process by which individuals interpret and organize sensory information to produce a meaningful experience of the world.

Emotions

Complex psychological states that involve a subjective experience, a physiological response, and a behavioral or expressive response.