Question $6(10$ marks; $36$ minutes$)$

Copperstone Company has two divisions. The Bottle Division produces products that have

variable costs of R$3$ per unit. Its $2009$ sales were $150000$ to outsiders at R$5$ 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 R$125000$ per year.

Mixing sells its finished products to outside customers for R$11\mathrm{.}50$ per unit. Mixing has variable

costs of R$2\mathrm{.}50$ per unit in addition to the costs from the Bottle Division. The annual fixed costs

of Mixing were R$85000.$ There was no beginning or ending inventories during the year.

Required:

$6\mathrm{.}1$ 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.