ACCA F5 “Sensible” transfer pricing to achieve goal congruence
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dear sir,
you might have mentioned it but i missed it, and i might sound stupid for asking but what would happen if there is unlimited demand from both externally and division B?
yes i was stupid i got it! we always add the opportunity cost to the marginal cost
I am please that you have sorted it out 🙂
Very well explained ..thanks for making it so clear Sir. 🙂
Thank you for you comment 🙂
Sir,
In example 7 , u said B would buy externally for $14 and make a profit…and that B will not buy from A if they charge $15..so u fixed the max TP of B as >14.
my question is what if A only charges 13? arent we buying externally at a greater price?
Never mind. I got the answer.
You are welcome!
Thanks a lot sir 🙂
You are welcome 🙂
Sir,
I see $20 is marginal cost for Division A, how could 22 is marginal revenue for Division B.
I thought 20 should be included in the cost so 28 would be Marginal cost for B, and the 2 would be the marginal revenue.
Hope you got my point.
Thanks
Marginal revenue is the selling price less the divisions own marginal costs.
But just think about what we are doing – we are trying to calculate the maximum B can afford to pay to A. If B sells for 30 and has their own costs of 2, then the most they can afford to pad to A if they are not to make a loss is 28. The words do not matter – what matters is understanding the whole point of it 🙂