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- This topic has 1 reply, 2 voices, and was last updated 3 years ago by John Moffat.
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- July 21, 2020 at 4:23 pm #577566
Hi Dear Tutor, I have questions.
Question a) Briefly it is calculated 37-20 and 17 will be incremental loss but I would like to see it in a wider picture scenario and I became stuck in doing it. (When I watched your lecture on transfer pricing your way is really logical and understandable. Usually you showed group profit and then each division separately,overall each division’s seperate profit amounted to the group profit.) I just tried to do it in that way but I just became stuck and the calculation is showen in the brief way.
As a group
Selling price———–96
Marginal cost ——–(20)
Own marginal cost (30)
profit———————46If division L sell to internal customer
Selling price——40
Internal marginal cost (24-4)
profit============20If division M buys Internally
Selling price—————96
Transfer price————–(40)
Own Marginal cost———-(30)
Profit————————26So 26+20=46
If the division M buys from outside then incremental loss for the company will be 17=46-29 but the department M will lose 3$ (29-26) profit when buying from outside supplier?
Selling price———96
Marginal cost own–(30)
Marginal cost division (37)
profit===========29Do you think my way is good and logical?I know it does not to calculate in such a long way but as I mentioned above i want to see it in a wider picture scenario.
July 21, 2020 at 5:47 pm #577575Yes – it seems good and logical 🙂
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