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Pls help on this question:below is the contributions margin for each division when boot division purchases from an outside supplier
Boot division
Selling. Price 100
Variable cost 45
Outside supplier of sole 25
Contributions margin 30Sole division
Sp 28
Vc 21
Contribution 7
Required: at what price should sole division sold 10000 soles to the boot division
Asssume two scenerio
1 where the division has no spare capacity
2where the mkt demands only 70000 soles…..Why are you attempting questions for which you do not have an answer? You should be using a Revision Kit from one of the ACCA approved publishers – they have answers and explanations.
And have you watched my free lectures on transfer pricing?
You have not said which division has no spare capacity.
Assuming that it is the Sole division that has no spare capacity then the minimum transfer price per unit will be the marginal cost of 21 plus the lost contribution of 7. But then the Boot division would not buy them because they can buy externally for $25.
You have not given enough information to answer the second scenario because it depends what the total capacity of the Sole division is.
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