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Conference co has a divisionalised structure.one of its divisions, division x, sells all its output to other divisions within the company.
Division X’s annual budgeted output and costs are as follows
Unit sold-1050
DM-22500
DL-45350
Overheads(40%)-37150what transfer price per unit will result in a profit margin of 20% for division X?
Dear tutor, there has not been mentioned about unlimited or limited and i remember in this situation standard cost method which is full cost method.
I solved the question which is 125$
((22500+45350+37150)*100/80)/1050 units=125
what do you think about my comment in this method?I am not meaning calculation.I am meaning about comment section “there has not been mentioned about unlimited or limited and i remember in this situation standard cost method which is full cost method”
I could have considered all marginal cost when the question would have mentioned about unlimited capacity or spare capacity?that is why i considered full cost approach which is standard cost only
There are two reasons this question needs to use the full cost and not the marginal cost.
One is that they sell all of the output to other divisions and therefore need to cover their fixed costs as well as the variable costs.
The other is that the question says they want a profit margin of 20%. If you had been expected to use the variable costs only then they would have written that it was a contribution margin that was required.
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