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	$22,000		$52,000
Cost of goods sold	10,560		27,560
Gross profit	$11,440		$24,440
Utility expenses	1,100		3,120
Wages expense	5,500		10,920
Costs allocated from corporate	2,200		15,600
Total expenses	$8,800		$29,640
Operating income/(loss) in dollars	$2,640		-$5,200
Operating income/(loss) in percentage	12	%	-10	%

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.

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. Round your percentage answer to one decimal place.

New operating income/(loss) for department B in dollars	$
New operating income/(loss) for department B in percentage		%

Answer 1