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My Dear Tutor, I have a question.
Suppose that Division A sells to Division B 15$ but External Supplier sells Division B 10$.Also, it can cost for Division B 9$.Division B sells externally 20$.
For Division A)Minimum transfer price will be -15$
10-9-loss if buy in
For Division B) Maximum Transfer price(20-10=10)-10 or (20-9=11)
Market price—-20
Marginal cost-9
controbution=11
loss if buy in (1)
profit=10loss if buy in occurs when internal production is lower than buying outside supplier?This question is in Bpp study text page number 426 calling Sub-optimal decisions.
I confused in this caseHere is Division A’s transfer price will be ignored because the price will change between
T.P between 10$ outside supplier offer and 11(20-9) ?
I do not have the BPP Study Text (only the Revision Kit) and so I cannot look at the whole question.
As you have typed it, it makes no sense at all that the minimum transfer price should be $15. The minimum transfer price is the marginal cost for Division A of producing.
The rest of it makes no sense at all without me seeing the whole question.
If you are watching my free lectures then you do not need to spend time on the Study Text. What is much more important (whether or not you are watching the lectures) is that you have a Revision Kit. The Revision Kit is full of exam-standard questions for practice.
My lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
I watched your lecture videos and it is really excellent for understanding.
I just faced such a case that is why i asked.
What you have explained in your lecture videos are all clear.
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