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.
(b) When preparing divisional income statements for a two-division company where one division sales some product internally to the other division, the sum of the net incomes of the two divisions will always equal the total net income of the company. (TRUE OR FALSE).