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The max of Transfer price

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › The max of Transfer price

  • This topic has 8 replies, 3 voices, and was last updated 7 years ago by John Moffat.
Viewing 9 posts - 1 through 9 (of 9 total)
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  • October 27, 2015 at 7:06 am #279175
    nicolex1990
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    DEAR John:
    I am confused with this question in BPP. Hope you can solve this with me.Thanks a lot.
    Que: A transfer its output to to B, just one item,X. B makes and sells and end product that requires one unit of X.
    margin cost of production in A $8/unit X
    fixed O/H cost of production 3
    market price in external market 16
    B contribution from further processing X before deducting transfer cost 25
    A is not working at full capacity.
    what’s max TP per unit of X?

    The ans. is 25, why can’t be 16?

    October 27, 2015 at 9:22 am #279218
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    If B can buy it on the external market for 16 then the answer would indeed be 16.

    I don’t know if you have typed the question in full, but BPP are obviously assuming that the external market price is the price that A could sell it at (not the price that B could buy it at)

    October 27, 2015 at 3:31 pm #279279
    nicolex1990
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Thank you John. I understand your meaning.But what I typed it’s already the whole Que.Now I got clearer about TP. Thank you so much.

    October 27, 2015 at 4:04 pm #279288
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    BPP should have made it more clear 🙂

    November 8, 2015 at 4:42 pm #281155
    Noureen
    Member
    • Topics: 14
    • Replies: 16
    • ☆

    Hi John,
    Division X produces 2 separate material Material G and Material D each unit of material G and D take the same amount of labour time to produce. MAterial G is only sold to external customer at a price of $14. The VC incurred $9 and fixed overheads amount to $1 per unit . The budgeted production for G is 2700 units
    Material D is sold to div Y only. The transfer price that has been set for each unit is full cost + 10 % . This material can be purchased external for $26 but div Y have been told by management that they must buy the material from div x . Div x incur VC of $20 and FC of $8 in producing material D budgeted production and sales are 2000 units div X has spare capacity.

    A.What is the likely reaction by Div x and Div y to the TP being set at full cost plus 10% recommend the reason a range of TP of material D

    B.And second part of div x is at full capacity in terms of labour recommend a new range of TPnfor material D .

    I have looked at your lecture and if looking at requirement A the MC of div X is 28 and division x cannot sell less than that and the min price will be set by X but in that case also div Y is making a loss of 1600 if full cost plus 10 percent is used so it will result in goal incongruncy and also the autonomy is not there as div Y must buy from div X but in that case what will be the TP will it be just 28? Or div y will purchase it from external supplier. At $ 26.

    Part b I know the the TP will be MC + opportunity cost which would be lost contribution from material G but I’m confused on the calculation can you do it for me pleAse and then the transfer price too

    Thanks
    Noureen

    November 8, 2015 at 5:34 pm #281160
    Noureen
    Member
    • Topics: 14
    • Replies: 16
    • ☆

    Also I forgot to supply information about division Y div Y uses one unit of material D to make one unit of finished product . It incurs additional cost of $ 30 per finished product and anticipates that it will produce and sell 2000 finished product . The selling price is $60.

    November 9, 2015 at 6:40 am #281207
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    If this is a past exam question then please tell me which exam.

    Otherwise we really cannot provide full answers to questions that you find elsewhere.

    November 9, 2015 at 7:31 am #281222
    Noureen
    Member
    • Topics: 14
    • Replies: 16
    • ☆

    No this not the past exam one of the exam kits..

    November 10, 2015 at 8:23 am #281402
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    Then tell me which question from which exam kit. If I have the exam kit I will look at it, but we cannot provide full answers to full questions here!

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