Dual pricing. A company has two divisions. The Bottle Division produces products that have variable costs of $3 per unit. Its 2009 sales were 150,000 to outsiders at $5 per unit and 40,000 |, Revenue, company units to the Mixing Division at 140 percent of variable costs. Under a dual transfer pricing —_ asa whole, $1,210,000 system, the Mixing Division pays only the variable cost per unit. The fixed costs of Bottle Division were $125,000 per year.

Mixing sells its finished products to outside customers for $11.50 per unit. Mixing has variable costs of $2.50 per unit in addition to the costs from Bottle. The annual fixed ‘

anagement Control costs of Mixing were $85,000. There were no beginning or ending inventories during gystems, Transfer Pricing, and :

the year.

REQUIRED 1. What are the operating incomes of the two divisions and the company as a whole for the year?
2. Explain why the company operating income is less than the sum of the two divisions’ total income.LO1