Riyadh Corporation has two divisions: A and B. Division A makes SIGMA, which is then transferred to Division B. SIGMA is further processed by Division B and is sold to customers at a price of $175 per unit. Division A is currently required by Riyadh to transfer its total yearly output of 250,000 units of SIGMA to Division B at 120% of full manufacturing costs. Unlimited quantities of SIGMA can be purchased and sold on the outside market at $100 per unit. The following table gives the manufacturing cost per unit in division A and B for 2010: The management in addition supplied the following information: Manufacturing overhead costs in Division A are 25% fixed and 75% variable. Manufacturing overhead costs in Division B are 60% fixed and 40% variable. Required 1. Calculate the operating incomes for the two divisions for the 250,000 units of SIGMA transferre the following transfer pricing methods: (i) market prices. (5 po (ii) 120% of full manufacturing cost. (iii) Internal Transfer at Hybrid Price
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