Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Apportioned fixed overheads ($15 per hour),PM practice exam 2

- This topic has 2 replies, 2 voices, and was last updated 3 months ago by alawi sayed.

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- February 27, 2024 at 8:09 pm #701312
Hi

If we have two products x and y

and and we are told to calculate the transfer price of X to B and we have given the apportioned fixed costs

so for calculating the opportunity cost we should not include the apportioned fixed cost because it is not variable cost

so for this question it will be Opportunity cost foregone 320 plus the variable cost of X 270=590

is my calculation correct??

Thanks

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QPerrin Co has two divisions, A and B.

Division A has limited skilled labour and is operating at full capacity making product Y. It has been asked to supply a different product, X, to division B. Division B currently sources this product externally for $700 per unit.

The same grade of materials and labour is used in both products. The cost cards for each product are shown below:

Product

Y

($)/unit

X

($)/unit

Selling price

600

–

Direct materials ($50 per kg)

200

150

Direct labour ($20 per hour)

80

120

Apportioned fixed overheads ($15 per hour)

60

90

Using an opportunity cost approach to transfer pricing, what is the minimum transfer price?

February 27, 2024 at 9:46 pm #701331I think …. To calculate the minimum transfer price for product X, we need to consider the opportunity cost foregone by division A by not selling product Y externally.

The opportunity cost foregone is the contribution margin of product Y, which is the selling price ($600) minus the variable costs ($200 for direct materials, $80 for direct labor, and $15 for apportioned fixed overheads).Therefore, the minimum transfer price for product X would be the opportunity cost foregone ($320) plus the variable cost of product X ($270), which equals $590 per unit.

February 28, 2024 at 6:09 am #701345Hi,

You said to and 15 for apportioned fixed o/H ,I think this what I started to question that we should not consider it as a variable cost of Y .

the opportunity cost is 600-D.M 200- D.L 80=320

is that ok ,

Thanks

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