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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?
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)
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.
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
NoureenAlso 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.
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.
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