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You will have to say which part of the answer you are not clear about, and then I will explain.
(I assume that you have watched my free lectures on transfer pricing?)
I am getting conflicting answers between the Examiners report and your report.
Does the 8010 represent the total demand for external or does it represent only the 60%.
I don’t know what you mean by my ‘report’ 🙂
The 8010 is the current external sales (as per the question).
Part (b) says that C currently satisfies 60% of the external demand.
Therefore the current external sales are only 60% of the full external demand, and therefore the full demand externally must be 8,010/60% = 13,350
ok so if 13 350 is the maximum demand for external customer then 2210(15560-13350) would be the remain demand which goes to the gearbox division ?
so the minimum C co can sell to gearbox division is 40% x 2210= 884( variable cost)
=5340( since it sell to gearbox at the same price as external customer )the min transfer price would be 5340+ 844=6224 C co can sell to gear box div
and the Maximum Price gear box div is willing to pay is 95%x 7550=7172
is my understanding correct ?
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