Transfer Pricing Case Study The Mill Flow Company has two divisions. The Cutting Division prepares timber at its sawmills. The Coating Division prepares the cut lumber into finished wood for the furniture industry. No inventories exist in either division at the beginning of 20X5. During the year, the Cutting Division prepared 60,000 cords of wood at a cost of $660,000. All the lumber was transferred to the Coating Division, where additional operating costs of $5 per cord were incurred. The 60,000 cords of finished wood were sold for $20 per cord or $1,200,000. Required: a. Determine the operating income for each division if the transfer price from Cutting to Coating is at cost - $11 a cord. b. Determine the operating income for each division if the transfer price is $15 per cord. Answer. 3. Cutting Coating Revenue $660,000% $1,200,000 Cost of services: Incurred $660,000 $ 300.000 Transferred-in 560,000 Total $ 660.000 $960,000 Operating income $240,000 * 60,000 cords * $11 = $660,000 Cutting Coating Revenue $900,000% $1,200,000 Cost of services Incurred: Incurred $ 660.000 $ 300.000 Transferred-in 900,000 Total $ 650.000 $1,200,000 Operating income $(240,000) $0 * 60,000 cords * $15 = $540,000