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 40,000 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 $270,000 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 $170,000. 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

Beta Gamma Company Sales External 880000 (22*40000) 1400000 2280000 Internal 240000 240000 Total 880000 1640000 2520000 Variable Costs Incurred 200000 (40000*5) 1080000 (180000*6) 1280000 Transferred in 240000 (40000*6) 0 240000 Total 440000 1080000 1520000 Contribution Margin 440000 560000 1000000 Fixed Costs 170000 270000 440000 Net Income 270000 290000 560000

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