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Hello tutors, i was encountering a transfer price exercise in kaplan where its include fixed cost in the calculation of transfer price.
I was concerned that if they do not mention to calculate minimum transfer price we will use the marginal cost to be the minimum TP for the selling divisions.
However, what if they do not mention it as minimum transfer price by saying only current transfer price or calculating the transfer price do we include the fixed cost in the calculation.
As i am aware that transfer price also include the full-cost approach.
Thank you for your guidance, looking forward to your reply.
Regards,
We did put a message on that support was unavailable until after 3rd December
In transfer pricing, the approach to calculating the transfer price can vary based on the company’s policy. If the question does not specify that you should calculate the minimum transfer price, it may be acceptable to use the current transfer price, which could include fixed costs if the company follows a full-cost approach.
However, in many cases, especially when aiming for sensible transfer pricing, fixed costs are typically ignored unless explicitly stated otherwise. This is because including fixed costs can lead to higher transfer prices, which may not align with the goal of ensuring goal congruence between divisions.
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