Market-Value Transfer Price. Epsilon Company has two divisions, \(M\) and \(S\). Division \(\mathrm{M}\) manufactures a product, and Division \(\mathrm{S}\) sells it. The intermediate market is competitive. But the product can be processed further and sold or stored for later processing and sale. Once the product is manufactured, some of it is sold by Division \(\mathrm{M}\); and some is transferred to Division \(\mathrm{S}\) which decides whether to hold or to process and sell the product. The following information pertains to the current year:

\section*{Required:}
1. Prepare an income statement for the whole firm.
2. Prepare a separate income statement for each division using a cost-based transfer price.
3. Prepare a separate income statement for each division using a market-value transfer price.

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Division M manufacturing cost for 1,200,000 units Of the 1,200,000 units produced: Sold by M in intermediate market-600,000 units.. Held by 5 for later sale-200,000 units (no additional $7,200,000 6,000,000 processing work done on these units in Division S)... Processed by S and sold-400,000 units 2,000,000 7,200,000 Intermediate market value of 600,000 units when transferred to S 6,000,000 Total additional processing costs of S...... 1,200,000