Determine the operating income for department b

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Question - 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).

The income statement for Marley's Manufacturing is shown below:

Marley's Manufacturing Income Statement Month Ending August 31, 2018

 

Dept. A

Dept. B

Sales

$21,000

$50,000

Cost of goods sold

10,290

26,500

Gross profit

$10,710

$23,500

Utility expenses

1,260

3,000

Wages expense

5,460

10,000

Costs allocated from corporate

2,100

14,500

Total expenses

$8,820

$27,500

Operating income/(loss) in dollars

$1,890

-$4,000

Operating income/(loss) in percentage

9%

-8%

Assume the market price for the items your department purchase is 15% below what you are being charged by department A of Marley's Manufacturing.

Required - Determine the operating income for department B, assuming department A "sold" department B 1,000 units during the month and department A reduces the selling price to the market price.

Reference no: EM133073965

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