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Sir,
please tell advise how to calculate below question.
company is making two products. X and Y
X Y
External selling price 80 100
Variable cost 60 70Contribution P.U 20 30
Labour Hours P.U 5hr 10hrThe company has limited labour hours available, and another division requires product Y.
What is the minimum transfer price that should be charged by the division in to achieve goal congruence?
Second Question
A business manufactures a single product that it sells for $20 per unit.
The unit cost of material is $5.
Total operating expenses are $80,000 per month.
Each unit of the product required 2machine hours, and machine hours are limited to 20,000 hours per month.
What is the throughput accounting ratio for this product?If you wish me to answer, then in future you must ask in the F5 Ask the ACCA Tutor Forum. This forum is for students to help each other.
If Division B did not exist, then A would prefer to use the limited hours making product X (because X gives the biggest contribution per hour (key factor analysis)).
B wants Y, but if A makes Y then every hour they use to make Y’s takes away hours that could have been used to make X’s and therefore loses them contribution of $4 per hour. They will only be prepared to produce Y provided it earns them at least $4 per hour.
So the transfer price for Y is the marginal cost (70) plus the lost contribution (10 hours x $4) = $110
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