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Hi ,
With respect to the marginal cost when we have to calculate the transfer price .This marginal cost should be only for the part of lost contribution not the whole marginal cost ,am I right?
In order to reach the minimum transfer price we have to add the marginal cost + the opportunity cost
Now this marginal cost should be only to the part of the opportunity cost or the full marginal cost of the production.
I am talking about the transferring division .
like in the question 332 ROTECH (JUNE 2014) kaplan Exame kit 2023-24
The marginal cost was only for the production of remaining internal sales 2210000*40%=884000
the minimum price is 5340000+884000=6224000
Because in the lectures this was explained in unit terms and in this question it is full sales term so it is a bit confusing .
Can you please clarify more in this matter.
Thanks,
C transfers to Gearbox
They will want to charge at least- marginal cost + op costThe minimum price is unsatisfied ext demand 5340000
This could be sold external if not to Gearbox – op cost+C spare capacity marginal(variable) cost of making them 884000
Makes in total =6224000
This was only for the production of remaining internal sales 2210000*40%=884000Thanks for clarification.
I struggled to understand but I got it now.
Because the external demand is limited to 5340000 for this the transfer price will be variable cost plus lost contribution
whereas for the remaining internal quantity 7550000-5340000=2210000 the transfer price will be only the variable cost because here there is no more lost contribution as the demand was limited to 5340000.The variable cost will be 2210000*.4= 884000
so the total minimum transfer price will be 5340000+884000=6224000with regard to maximum price
will be external supplier price which is =7550000*.95=7172500so the final transfer price should be between 6224000 to 7172500 from C co to gearbox division ,
The transfer price is a really a hard area to tackle.
Thanks a lot.
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