Eat More Food Company began business in January 2009. It produces various food products that pass through two divisions. The Lansing Division processes the food, and the Simeon Division packages it. During 2009, the Lansing Division processed 100,000 pounds of food, for a total production cost of $250,000. Its selling and administrative expenses amounted to $50,000. The Simeon Division incurred $100,000 of additional production costs in completing the 100,000 pounds. The Simeon Division sold the 100,000 pounds of completed units for $450,000 and incurred selling and administrative expenses for the year of $30,000.

Required

A. Prepare divisional income statements for 2009 for each of these two divisions, assuming that the transfer price is equal to Lansing Division’s total costs (i.e., production costs and selling and administrative expenses).

B. Prepare divisional income statements for 2009 for each of these two divisions, assuming that the transfer price is based on the external market price of $3.50 per pound that Lansing would charge outside customers.

C. Which statement presents a better measure of each division’s performance?Why?