Burdeno Appliances has two divisions, Sales and Financing. Sales is responsible for selling Burdenos inventory and maintaining inventory for future sale. Financing Division takes loan applications, packages loans into pools, and sells them in the financial markets. It also services the loans. Both divisions meet the requirements for segment disclosures under accounting rules.

Sales Division had $27 million in sales last year. Costs, other than those charged by Financing Division, totaled $25 million. Financing Division earned revenues of $4.4 million from servicing loans and incurred outside costs of $4.9 million. In addition, Financing charged Operations $900,000 for loan-related fees. Sales manager complained to corporate that Financing was charging 150 percent of the commercial rate for loan-related fees and that Sales would be better off sending its buyers to an outside lender.

Financings manager replied that although commercial rates could be lower, servicing these loans is more difficult, thereby justifying the higher fees.

Required:

a. What are the reported segment operating profits for each division, ignoring income taxes and using the $900,000 transfer price for the loan-related fees?

b. What are the reported segment operating profits for each division, ignoring income taxes and using a $600,000 (= $900,000 150%) commercial rate as the transfer price for the loan-related fees?

\begin{tabular}{|l|l|} \hline & Operating Profits \\ \hline Sales Division & \\ \hline Financing Division & \\ \hline \end{tabular} \begin{tabular}{|l|l|} \hline & Operating Profits \\ \hline Sales Division & \\ \hline Financing Division & \\ \hline \end{tabular}