Cornerstone Company Has Two Divisions

question 141

Essay

Cornerstone Company has two divisions. The Bottle Division produces products that have variable costs of $3 per unit. Its 20X5 sales were 140,000 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 were no beginning or ending inventories during the year.
Required:
What are the operating incomes of the two divisions and the company as a whole for the year? Explain why the company's operating income is less than the sum of the two divisions' total income.

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Definitions:

Generalized Anxiety Disorder

A mental health disorder characterized by persistent and excessive worry about a variety of things, not limited to one specific issue or situation.

Autonomic Nervous System

A part of the peripheral nervous system that regulates involuntary body functions, including heart rate, digestion, and respiratory rate.

Apprehension

A feeling of anxiety or fear that something bad or unpleasant will happen.

Phobic Fear

An intense, irrational fear of specific objects, situations, or activities, leading to avoidance behavior and distress.