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Dear sir,
for the JUNE 13 PAPER, the Q4. in the examiner answer with page 20. it says that the mark-up on actual total production cost of 30%….. however, the scenario does not provide any information about this 30% figure? where does this amount comes from?
thanks so muchHe says:
“… A mark-up on actual total production costs of 30% (say) would not seem unusual…”
In other word he has chosen 30% as an example of a reasonable mark-up. 30% is not in the question. 50% would be fine too.
DEAR SIR,
I have another question, that is the ‘cost plus basis’ is same as the ‘actual total cost’? tight?
thanks so much!Actual cost = actual cost, without a mark-up
Cost plus = cost, plus a mark-up for profit.
Thanks. Sir
I know if use the cost plus basis then the price =cost*mark-upIf use the total actual cost, the price calculation is same with the method of cost plus basis?
Thanks. SirIt might be. It depends what you base the cost+ on.
In this question they make the point that haveing a trandfer price = Actual Cost plus a mark-up gives no incentive to keep costs down because the bigger the cost, the bigger the mark-up and the boigger the profit.
So, here they suggest that the transfer price should be budgeted cost plus so that any cost over-runs hurt the producing division not the buying division.
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