Is it true that maximum transfer price can be calculated as either:
a) Net marginal revenue which is the external selling price minus marginal cost of producing the product. OR
b) buy-in price externally
I have seen in the old exam question [Rotech Co] where the discount is minus from the marginal cost of $7550 where 5% of discount is deducted to get the maximum transfer price of $7172.5, but my question is that whether the discount is deducted from net marginal revenue minus marginal cost minus discount to get maximum transfer price?
Please correct me where I'm wrong!
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Maximum transfer price
5y ago#1The maximum transfer price is the lower of the net marginal revenue (which is the external selling price less the marginal cost incurred in that division), and the external buy-in price. (It is not a choice - it is the lower of the two).
In Rotech, the discount is being offered by the external supplier and so reduces the external buy-in price.
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