Dual Transfer Pricing The Greek Company has two divisions, Beta and Gamma. Gamma

Question

Dual Transfer Pricing
The Greek Company has two divisions, Beta and Gamma. Gamma Division produces a product at a variable cost of $6 per unit, and sells 140,000 units to outside customers at $10 per unit and 50,000 units to Beta Division at variable cost plus 40 percent. Under the dual transfer price system, Beta Division pays only the variable cost per unit. Gamma Division's fixed costs are $240,000 per year. Beta Division sells its finished product to outside customers at $22 per unit. Beta has variable costs of $5 per unit, in addition to the costs from Gamma Division. Beta Division's annual fixed costs are $150,000. There are no beginning or ending inventories.

(a) Prepare the income statements for the two divisions and the company as a whole.

Do not use negative signs with your answers.

Greek Company
Divisional Income Statement Beta Gamma Company Sales: External $Answer $Answer $Answer Internal Answer Answer Answer Total Answer Answer Answer Variable costs: Incurred Answer Answer Answer Transferred in Answer Answer Answer Total Answer Answer Answer Contribution margin Answer Answer Answer Fixed costs Answer Answer Answer Net income $Answer $Answer $Answer

Explanation / Answer

Greek company

Beta Gamma Company Sales: External $1,100,000 1,400,000 $2,500,000 Interanl    420,000      420,000 total $1,100,000 $1,820,000 $2920,000 Variable cost: incurred    840,000    840,000 Transferred in     300,000     -    300,000 Total $300,000 $840,000 $1140,000 contribution    $800,000 $980,000 $1780,000 Fixed cost $150,000 $240,000 $390,000 Net income $650,000 $740,000 $1390,000

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