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I am having problem calculating the lost contribution while doing minimum transfer pricing.
I know that (Minimum transfer pricing = Marginal cost + opportunity cost) where opportunity cost is lost contribution for the selling division.
Please tell me how do i calculate lost contribution and in what perspective should i think as selling division or buying division??
And please also tell me the formula for maximum transfer pricing.
Isn’t lower of either:
(External selling price – variable cost of buying division)
or
(External selling price of market)Correct me if this is correct.
The lost contribution is the difference between the external selling price and the marginal cost of production.
The ‘rule’ is correct.
I do suggest that you watch my free lectures on transfer pricing. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
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