Cran Benefit Products is a cranberry cooperative that operates two divisions, a harvesting division and a processing division. Currently, all of harvesting's output is converted into cranberry juice by the processing division, and the juice is sold to large beverage companies that produce cranberry juice blends. The company calculated the operating income and the corresponding division managers' bonuses(equal to 4% of division operating income) when 400,000 pounds of cranberries are harvested and processed into juice under two different transfer pricing methods:

Bonus Calculations:

	200% of
	Full costs	Market price
Harvesting division:
Revenues	$288,000	$300,000
Costs
Division variable costs	28,000	28,000
Division fixed costs	116,000	116,000
Total division costs	144,000	144,000
Division operating income	$144,000	$156,000
Division manager's bonus	$5,760	$6,240

Processing division:
Revenues	$500,000	$500,000
Costs
Transferred-in costs	288,000	300,000
Division variable costs	70,000	70,000
Division fixed costs	90,000	90,000
Total division costs	448,000	460,000
Division operating income	$52,000	$40,000
Division manager's bonus	$2,080	$1,600

More Info:

Assume that Pat Borges, CEO of Cran Benefit, had mandated a transfer price equal to 200% of full cost. Now he decides to decentralize some management decisions and sends around a memo that states the following: "Effective immediately, each division of Cran Benefit is free to make its own decisions regarding the purchase of direct materials and the sale of finishedproducts."

Requirement 2. Borges feels that a dual transfer-pricing policy will improve goal congruence. He suggests that transfers out of the harvesting division be made at 200% of full cost and transfers into the processing division be made at market price. Compute the operating income of each division under the dual transfer-pricing method when 400,000 pounds of cranberries are harvested during June 2017 and processed into juice.

Begin by computing the harvesting division's operating income, then compute the processing division.

Harvesting division:
Revenues
Costs
Division variable costs
Division fixed costs
Total Division costs
Division operating income