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Transfer price of product is $66 and there is transfer of 15000 units
Manager wants to increase his Residual Income by $85000.Ans; Increase in TP of 85000/15000=5.67
New TP= $71.67My question is how is TP linked with increase or decrease in the Residual Income?
In future, if you want me to answer then you must ask in the Ask the Tutor Forum – this forum is for students to help each other.
The whole point of having transfer pricing at all is so that we can make each division profit accountable. For measuring performance (whether we use RI or something else) of a division then it is only going to make any sense if the divisions are able to charge other divisions as though they were separate companies. Otherwise there would be no point in bothering with transfer pricing – the total profits of the whole company are not affected.
I do explain this in my free lectures. The lectures are a complete free course for Paper F5 and cover everything needed to be able to pass the exam well.
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