Mill Co$.$ has two operating divisions: Cutting and Finishing. During the most recent year

the Cutting Division cut $60,000$ cords $($units$)$ of lumber and incurred variable costs of $$900,000$ and

fixed costs of $$420,000.$ All this lumber was transferred to the Finishing Division, where the cut

lumber was finished into boards incurring costs of $$32$ per cord. The Finishing Division sold the

$60,000$ cords of lumber as finished wood for $$5,000,000.$ Cut wood that is unfinished can be sold in

the external market for $$30$ per cord.

a$.$ Using a transfer price based on total manufacturing costs, prepare Operating Income Statements for

each division: Cutting and Finishing.

b$.$ Using a transfer price based on external market prices, prepare Operating Income Statements for

each division: Cutting and Finishing.

c$.$ Cutting transfers all its output internally to Finishing. Should Cutting be treated as a cost center or

profit center to meet goal congruent objectives? Explain your answer