P5 JUNE 13 — OpenTuition Forums

3310zcx10y ago

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 much

kengarrettTutor10y ago#1

He 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.

3310zcx10y ago#2

DEAR SIR, I have another question, that is the 'cost plus basis' is same as the 'actual total cost'? tight? thanks so much!

kengarrettTutor10y ago#3

Actual cost = actual cost, without a mark-up Cost plus = cost, plus a mark-up for profit.

3310zcx10y ago#4

Thanks. Sir I know if use the cost plus basis then the price =cost*mark-up If use the total actual cost, the price calculation is same with the method of cost plus basis? Thanks. Sir

kengarrettTutor10y ago#5

It 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.