Dual Transfer Pricing The Greek Company has two divisions, Beta and Gamma. Gamma
ID: 2456607 • Letter: D
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 CompanyDivisional 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
Income Statement of Divisions and the Company Beta Gamma Company Sales: External 1,400,000 1,100,000 2,500,000 Beta -140000 Units @$10 per Unit Gamma - 50000 Units @ $22 per unit Internal 420,000 - 420,000 Beta - 50000 Units @$8.40 per unit Total Sales 1,820,000 1,100,000 2,920,000 Variable Costs Beta - 190000 Units @ $6 per unit 1,140,000 250,000 1,390,000 Gamma - 50000 Units @ $5 per unit Incurred Transffred In - 420,000 420,000 Total 1,140,000 670,000 1,810,000 Contribution margin 680,000 430,000 1,110,000 Fixed Costs 150,000 240,000 390,000 Net Income 530,000 190,000 720,000
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