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Hi My Dear tutor, I have a question.
————————-Component L—————————–Product M
Selling price————-40$—————————————–96$
Direct materals
component l———————————————————40$
Other———————12$—————————————–17$
Direct labour————-6$——————————————9$
Variable overheads–2$——————————————–3$
Selling and Dist cost–4$——————————————-1$
Contribution————-16—————————————–26Annual demand—160000———————————-120000
Capacity of plant—300000———————————130000Under product M, there is component L 40$, which is selling price of Division L?
If Division L sells it at only marginal cost 20$ (due to 120000 spare capacity out of 300000) why we deduct 40$ from selling Price of M(96-40-30) why not 20$ of marginal cost only(96-20-30 ?in fact it costed 20$ for Division M not 40$.it confused me
Need explanation
I assume you are referring to the answer to part b of the question. Part b asks what the profit will be using the current transfer price (which is $40).
Part c asks about problems if they do not change the transfer price, but does not require any calculations.
(Please do not type out exam questions – the ACCA gets angry because the questions are the copyright of the ACCA. You only need tell me the name of the question and which exam it was in.)
Yes part b,i mean why component l shows 40$ in product m if division m buys it at marginal cost.transfer price will be at 20 not 40.it really confused me
Why 96-40-30 not 96-20-30?
If Acca enables to download question on its officiaf web page then it will not be a problem.if they get angry then they make it not accessible for us 🙂
But the question says that the current transfer price is $40, and it asks what the profit will be at the current transfer price. Part b does not ask what the minimum transfer price should be – that is not relevant for part b.
I know full well that the ACCA allows you to download questions, but that does not allow sharing of copyright material, which is what is happening when it is posted on this website.
(Incidentally, you should not just practice past questions from the ACCA website – you should buy a Revision Kit from one of the ACCA approved publishers. They contain past questions (they pay the ACCA for the copyright) but also lots more exam-standard questions for practice, and practice at lots of questions is vital to passing the exam).
Yea yea it says current transfer price.I am sorry i have not paid attention to it.
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