the part b (i) is only for 3 marks but BPP’s answer is a whole page!! I only gave the answer as 30% of the market price being 5.60 and that the L div wouldnt take this up as they can buy for 5.5 externally. Is this enough?
Thinking about it, it requires a bit more than what i wrote down as the Q says, from NAW Group point of view. So best to mention the 5m spare capacity and that this can actually be done at cost price but anything above that would need to be considered etc.
But seems like a really long winded section when he only allocated 3 marks to it! It doesnt seem fair.
costs to group always confuses me
wht points should be considered when calculating cost/benefit to group.secondly in the naw question why is avoided vc added to group cost?
This is where ROI vs RI or ROCE NPV comes in. ROI is usually used for divisional decisions. The others for Group. So if ROI is negative a divisional manager would refuse the investment as it would make his figures look bad but from Group point of view if you looked at ROCE and you got positive, the Group would want this investment to go ahead. Or Group could be looking at NPV and say even though in its first year the project has a negative NPV, it may bring in positive NPV after that. Group may see this as acceptable but Divisional manager wouldnt as it makes him/her look bad in the short run.
So I would say, usually Group will be interested in the long term return on a project (unless otherwise stated) however a Divisional Manager will tend to be interested in the short term – unless he is not judged by his short term perf.
thanx begum for ur help, But i was referring to transfer pricing rathar than roi/ri.
In transfer pricing questions when it is asked to assess the effect on group of a certain T.P what points/calculations do we include.i find it really confusing.
any help would be appreciated.
I don’t think I fully understand what you mean but I tend to look at the point that if the selling division isn’t treated fairly and asked to sell at low transfer price then they’ll go external to sell the product or if they’re forced to make the internal sale then there will be demoralisation etc in the selling division.
Does this help? Anyway good luck for tomorrow.
not really my point
u know how questions ask the effect of a transfer price on group profits?how do u calculate tht?
thnx for ur help and time
all the best for the paper tmr….hope it rock
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