A company has two divisions. The Bottle Division produces products that have variable costs of...
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A company has two divisions. The Bottle Division produces products that have variable costs of $ per unit. For the current year, sales were to outsiders at $ per unit and units to the Mixing Division at percent of variable costs. Under a dual transfer pricing system, the Mixing Division pays only the variable cost per unit. The fixed costs of the Bottle Division were $ per year. Mixing sells its finished products to outside customers for $ per unit. Mixing has variable costs of $ per unit in addition to the costs from Bottle. The annual fixed costs of Mixing were $ There were no beginning or ending inventories during the year. Required: What are the operating incomes of the two divisions and the company as a whole for the year? Explain why the company operating income is less than the sum of the two divisions total income.
A company has two divisions. The Bottle Division produces products that have variable costs of $ per unit. For the current year, sales were to outsiders at $ per unit and units to the Mixing Division at percent of variable costs. Under a dual transfer pricing system, the Mixing Division pays only the variable cost per unit. The fixed costs of the Bottle Division were $ per year.
Mixing sells its finished products to outside customers for $ per unit. Mixing has variable costs of $ per unit in addition to the costs from Bottle. The annual fixed costs of Mixing were $ There were no beginning or ending inventories during the year.
Required:
What are the operating incomes of the two divisions and the company as a whole for the year?
Explain why the company operating income is less than the sum of the two divisions total income.
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