Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Rotech co followup
- This topic has 1 reply, 2 voices, and was last updated 7 years ago by
John Moffat.
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- February 24, 2018 at 6:18 pm #438755
Sir two things which I specifically did not understand in this question is:
1)Gearbox is currently buying a total of 7,550 from C. The extra (7,550 – 5340 = 2210) could not be sold externally and so there is no lost contribution. So for these the minimum C should charge is the marginal/variable cost of 40% x 2210 = 884.
2)The maximum transfer price is determined by Gearbox division, and is the lower of the net marginal revenue and any external price. I have understood this,and here external purchase price is 7550*95% = 7172.5 , right? but what I have not understand is that here what would be the NMR, and how we have assumed that external purchase price is lower than NMR, when infact we have not calculated NMR?
February 25, 2018 at 10:26 am #4388281. Gearbox wants 7550. C could sell 5340 externally and therefore the minimum for these is the marginal cost plus the lost contribution. The remaining 2210 could not be sold externally and so the minimum for these is the marginal cost which is 40% of the price.
2. We don’t need to know the NMR. Gearbox is currently making a profit with the existing transfer price. They have been quoted a price 5% lower externally, and therefore this must be lower than the NMR (otherwise they wouldn’t be making a profit with the existing price).
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