River Road Paint Company Has Two Divisions

Essay

River Road Paint Company has two divisions. The Production Division produces base colours used by the Mixing Division. In 2015 the Production Division had external sales of 200,000 units at $8.00 per unit; and, transferred 60,000 units to the Mixing Division. The variable costs in the Production Division were $5 per unit and the fixed costs were $520,000 based on a practical capacity of 260,000 units. The Mixing Division sells its finished product to customers for $11.20 per unit. The Mixing Division had variable costs of $2.50 per unit and the annual fixed costs were $150,000. There were no beginning or ending inventories during the year.
Required:
Prepare the general journal entry for the transfer assuming that a dual pricing arrangement has been agreed to that requires the Mixing Department to pay the variable cost and the Production Department to receive the market price.