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So i am having a struggle with this exercise.
The company XYZ have two divisions, the Division A and the Division B.
Division B monthly purchase 10.000 units to Division A, using as PTI total cost plus
5%. It is also known that the fixed costs incurred corresponding to 33% of total cost.
However, the Division A modernized its production equipment and wants to increase
the PTI to 18 euros/units.
The manager of Division B argues that it cannot support the new value as this would
lower their results to close to zero. Alternatively, the Division B can buy to an external
supplier for 16,5 euros/ unit., benefiting in this case a 45-day payment (cost of capital
opportunity is 4% / quarter). The Division A has no alternative use for this material.
Request:
Setting a price range for this transaction.A question could not be asked in this form in the real exam.
However, as I explain in my free lectures, the minimum transfer price will be the marginal cost of production in Division A. The maximum transfer price will be the external purchase price.
Hello,thanks for you replying.
Could you be more specific on this exercise, using numbers ?
I will appreciate your answer because i get frustrated on this one.
Thank you in advance
I cannot spend the time on this because, as I wrote before, a question could not be asked in this form in the Paper PM exam.
Have you watched my free lectures on this?
Also, which are you attempting a question for which you do not have an answer. You should be using a Revision Kit from one of the ACCA Approved Publishers. This forum exists for you to ask about anything you are not clear about in our lectures or in past exam questions. It is not to provided with full answers to full questions 🙂
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