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Hi Dear Tutor, Portable co and Bath co.
Both question’s a section says under current transfer pricing prepare cost profit and so on anyway i do not want to write the whole requirement it is already familiar to you.
In the scenaior says, head office’s purchasing policy only allows Division to purchase from Internal division.
In batch co buyer division is 80000 units for maximum external demand as well as capacity 80000 units
in portable co buyer division is 180000 units for maximum external demand but 150000 units for capacity
do we always pay attention under current policy buyer division’s capacity plant critetia or external demand criteria?in batch co it is the same but in portable co it is different so under current policy consider capacity of buyer division or external demand ?
Although you do not need to type out the question, in future please do say which exam it is from 🙂
It all depends on the wording of the question. In Bath part (a) it asks about the current system, and the question says that the current system only allows Division A to purchase fittings from Division B.
In bath co and portable co the question a part is the same.
In batch co we would have never known which one we have to pay attention as it is the same.In portable cost it changes despite the wording is the same in both scenaior.Head office only allows buying divsion to buy from selling division. I alwways pay attention capacity plant not external demand of buying division because under current system capacity plant is relevant as if it is beyon current system means that there will be something like optimal group profit or maximise group profit.
Sorry it was long as i consider your last time saying.
Coud you give me supporting word for Batch co why they used 80000 units to internal division(this is because in selling division internal demand has showen as 80000 units and it matches the internal demand and capacity plant of buying division which is also showen 80000 units) ?
Coud you give me supporting word for Portable co why they used 150000 units to internal division regardless of divion B has external demand of 180000 units?(in the selling division internal demand of 180000 units has not been showen but buying division maximum external demand is 180000 units and capacity 150000 units)
From this perspective we can clearly witness that always capacity plan point of view is considered rather than external demand point of view of buying divison.
Also the scenaior is the same in both case
In Bath, division A is producing 80,000 baths and therefore needs 80,000 sets of fittings. Under the current system these have to be about from Division B.
In Portable Garage, under the current system Division B is producing and selling 150,000 batteries and therefore buys 150,000 from Division A. They are not meeting the total demand because the question says that Division A is refusing the sell more that the current level of adaptors supplied (which is 150,000).
In Bath, division A is producing 80,000 baths and therefore needs 80,000 sets of fittings. Under the current system these have to be about from Division B.
In Portable Garage, under the current system Division B is producing and selling 150,000 batteries and therefore buys 150,000 from Division A. They are not meeting the total demand because the question says that Division A is refusing the sell more that the current level of adaptors supplied (which is 150,000).
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