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Sir, could you please explain how to arrive at the answer for question 3 from the practice question of chapter 18?
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Contribution per hour from X = 20 / 5 = $4
Contribution per hour from Y = 30 / 10 = $3
Minimum transfer price = $100 + (10 hours x $4) = $140But sir why do we use the contribution per hour of X for the calculation of transfer price of Y?
Have you watched the lectures on transfer pricing?
I go through this very example in the lecture and you cannot expect me to type out the whole lecture here!The minimum transfer price is the marginal cost plus any lost contribution. If they make why then they are losing contribution that they could have made from X.
Hello Sir. I have problem in making the Profit table for Risk and Uncertainty Chapter.
I have come across a question from the revision notes.
Sales per week :
Sales (units) Probability
10 0.3
20. 0.5
30. 0.2
Selling price : $20 p.u
Cost: $10 p.u
Any unsold units must be sold as scrap for $1 p.u
The company can contract to purchase 10, 20 or 30 units each week
How many units should they contract for?
Sir I have tried to work out the values for the profit Table but I’m not getting the same values as it is in the answer.
Can you please tell me how to calculate the values?All sold units make a profit of 20 – 10 = $10 per unit.
All unsold units make a loss of 1 – 10 = $9 per unitSuppose they contract to buy 10. Then whatever the demand is they will sell all 10.
Therefore the profit will be 10 x $10 = $100.Suppose they contract to buy 20. Then if demand is only 10, they will sell 10 and make a profit on them of 10 x $10 = $100. The other 10 will be sold as scrap and on these they will make a loss of 10 x $9 = $90. Therefore the profit will be 100 – 90 = $10.
If they contract to buy 20 and demand is 20, then they will sell all 20 and the profit will be 20 x $10 = $200. If demand is 30 then they can only sell the 20 they have, and so the profit again will be $200.
You should now be able to finish off the table yourself.
Hello Sir,
I’m kinda doubtful about my decision tree diagram from the revision notes
Anyhow I reached the conclusion that, Charming plc should buy Machine A, if demand will be high then there will be no scrap value after 10 years, and if demand will be low then we will invest additional $5000 to generate $1500 for the next 5 years.
Is this correct Sir?Sir can you explain me the answer for scenario (iii) in the last question, Business Solutions of the Revision notes?
Why the company needs to set a cross charge that discourages a consultant going North, I.e above 500 but below 700?For the company as a whole it is better that consultants do not go North.
The company then earns $700 from South consultants and North only then pays external consultants $500.
If the charge is less that $700 then South prefers not to send consultants North (which is what is best for the company. If the charge is more than $500 then North doesn’t want consultants from South (which is what is best for the company).
Sir,
Can u plz tell me how to find learning rate?
If time taken to priduce 1st unit 28 hrs
Production to date 15 units
Cumulative time taken. 104 hrs
What is the percentage of learning effect?Have you watched our free lecture on learning rates?? Calculating the learning rate is covered in the lecture.
The question could not be asked as you have typed it (because you can only be expected to use the doubling rule when calculating the learning rate itself).
What the question must have said is that they produce another 15 units (so 16 in total).
Assuming that 104 hours was the time for the extra 15, then the total time for 16 will be 28 + 104 = 132, and therefore the average time per unit when producing 16 is 132 / 16 = 8.25 hours.
Therefore the learning rate = the fourth root of (8.25 / 28) = 0.736 (or 73.6%)
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