Transfer Pricing part 2 – ACCA Performance Management (PM)
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Hello
I wanted to know what we would have picked as our TP if in example 5 A could sell goods externally for $30
Hey John,
Is it possible for a question in PM to ask on transfer price between 3 divisions : A B C ?
Mr Jonn,
i must say ur REALLY CUTE!
Thank you for the lecture!
Thank you for the comment 🙂
Hi John, in all the examples that we solved, the external purchase/sales remain un-favorable somehow. Carious to know what would happen if it become favorable? does the division A or B go external or would they prefer to remain within the company despite external option is favorable?
If the minimum TP is higher than the maximum TP then there will not be a TP that will satisfy both divisions and so there will not be a transfer. This will automatically be better for the company as a whole.
you haven’t talked about full price and opportunity cost approaches of transfer prices.
I do mention full cost and the assumption that makes it irrelevant, and the opportunity cost is of course the lost contribution which is the basis of most of what we do. The lectures cover everything that has ever been asked in transfer prices in the team !!
18:57 lost contribution is also known as opportunity cost innit?
It is an example of an opportunity cost
HI john, hope u are doing good.
am a bit confused with the transfer pricing. these two questions will help me allot to understand my issue.
1.does any price between minimum TP and maximum TP always leads goal congruent.
2. and what happens, for instance if the transfer price is not with in the range of the sensible transfer price, assuming that divisional managers have autonomy to buy and cell form external market.
forward looking to to see your wonderful explanation john.
thanks in advance.
1. Yes
2. Then they should not transfer and should buy or sell to the external market.
thanks john for you support, I am really appreciated? .
referring to Q2. how it will affect company as hole.
The company as a whole will make more profit by not transferring. but by selling/buying externally.
Dear John Sir,
How are you?
I hope you are great,
Thank you for your informative lecture and your time .
Thank you so much.
Also sir the net marginal revenue is after deducting all Variable costs and FOAR/unit, right?
The net marginal revenue is after deducting the variable costs in that division.
Why not contribution margin instead of net marginal revenue.
The contribution (contribution margin is not a term) would be after subtracting all variable costs including the cost charged by the other division, and that is what we are trying to calculate.
Sir the transferring-in division will be the division buying goods and transferring-out would be the selling division, right?
The transferring out division is the division transferring goods to the other division.
The transferring in division is the division that receives goods from the other division (and then sells them externally)
wow i have never understood transfer price this well. thanks dear Tutor
In example 6 , im confused with the $5 contribution that the division A lost
If they sell the goods externally then they get $20 revenue and the cost is $15, so they make a contribution of $5. If they cannot sell externally then they will lose that $5 contribution.
Thank you for the lectures.
Hi John
I am confused with the full cost and marginal cost for transfer pricing.
Full cost is VC + FC + markup = Transfer pricing. As you always mentioned in short term, FC is excluded. Am I right?
Is transfer pricing is always marginal cost???