1 Internal transfers at market prices (Method Ab bInternal transfers at 110% of full costs (Method B) Mining Division Revenues €90 × 400,000 units a × 400,000 units €36,000,000 €26,400,000 Deduct Division variable costs b × 400,000 units 20,800,000 20,800,000 Division fixed costs c × 400,000 units 3,200,000 3,200,000 Division operating income €12,000,000 €2,400,000 Metals Division Revenues €150 × 400,000 units €60,000,000 €60,000,000 Deduct Transferred-in costs €90 × 400,000 units €66 × 400,000 units 36,000,000 26,400,000 Division variable costs d × 400,000 units 14,400,000 14,400,000 Division fixed costs e × 400,000 units 6,000,000 6,000,000 Division operating income €3,600,000 €13,200,000 ab Variable cost per unit in Mining Division = Direct materials + Direct manufacturing labour + 75% of Manufacturing overhead = €12 + €16 + 75% × €32 = €52. c Fixed cost per unit = 25% of Manufacturing overhead = 25% × €32 = €8. d Variable cost per unit in Metals Division = Direct materials + Direct manufacturing labour + 40% of Manufacturing overhead = €6 + €20 + 40% × €25 = €36 e Fixed cost per unit in Metals Division = 60% of Manufacturing overhead = 60% × €25 = €15 2 Bonus paid to division managers at 1% of divisional operating income will be as follows
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