1.Galaxy Corp manufactures high end telescopes and has two divisions:Assembly and Finishing.The Assembly division manufactures lenses that can be sold immediately after assembly for $900 or can be process further in the Finishing Division.After work is completed in the Finishing Division, the Finished Telescopes sell for $1,200 per unit. Financial results from the most recent period are as follows:

Assembly Division Finishing Division

Variable manufacturing costs $650 $200

Fixed manufacturing costs $50 $50

External sales price $900 $1,200

a.Using a transfer price based on total manufacturing costs prepare Operating Income Statements for each Division:Assembly and Finishing.

b.Using a market-based transfer price prepare Operating Income Statements for each Division:Assembly and Finishing.

c. For Galaxy Corp. (total company perspective) which transfer price option (cost-based or market based) is preferred?Why is this method preferred?

Using a transfer price based on total manufacturing costs prepare Operating Income Statements for each Division:Assembly and Finishing