Wentworth Company Has Two Divisions

Essay

Wentworth Company has two divisions.The Bottle Division produces products that have variable costs of $3 per unit.Its 2010 sales were 150 000 to outsiders at $5 per unit and 40 000 units to the Mixing Division at 140% of variable costs.Under a dual transfer-pricing system,the Mixing Division pays only the variable cost per unit.The fixed costs of the Bottle Division are $125 000 per year.
Mixing sells its finished products to outside customers for $11.50 per unit.Mixing has variable costs of $2.50 per unit in addition to the costs from the Bottle Division.The annual fixed costs of Mixing were $85 000.There was no beginning or ending inventories during the year.
Required:
What are the operating profits of the two divisions and the company as a whole for the year? Explain why the company's operating profit is less than the sum of the two divisions' total profits.
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