• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

Congratulations to Jamil from Pakistan and Jeeva from Malaysia - Global Prize winners!
see all ACCA December 2022 Genius Hunt Competition winners >>

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

TP question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › TP question

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • October 14, 2021 at 12:22 pm #637666
    Imran.Sajjad
    Member
    • Topics: 24
    • Replies: 7
    • ☆

    [Question]
    Cherry Co has two divisions A and B. Division A produces product X and sold exclusively to the external market. Division B produces product Y and it required units of product X to produce Y.

    Divisons_____________A___________B
    Selling Price—————$37————-$150
    Variable cost—————$30————–$65
    Cost of X purchased-
    from outside supplier———————–$35
    Contribution margin——-$7————–$50

    Requirement:
    1) What would be the minimum transfer price if division A sold 12,000 units of product X where there is no spare capacity?

    2) What would be the maximum transfer price?

    [Answer 1]
    Minimum TP = Variable cost + Opportunity cost
    Minimum TP =——–$30——+———$7
    Minimum TP = ——-$37

    Opportunity cost is the lost contribution that we would have earned by selling the goods to division B and earned $7 contribution but instead we decide to sell it to external market so we compensate lost contribution from the external market by charging them higher.

    [Answer 2]
    Maximum TP = Lower of: i) Net Marginal Revenue ii) External Buy
    Maximum TP = Lower of: i) $85 = (150 – 65) ii) $35
    Maximum TP = $35

    Is this correct sir?

    October 14, 2021 at 4:59 pm #637684
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51576
    • ☆☆☆☆☆

    It is correct.

    Given that there is no transfer price that is higher than $37 but lower than $35, A will not sell to B but should sell externally and B will not buy from A but will buy externally.

    This is good for the business as a whole because by doing that they will make a total contribution of $57 per unit, whereas if A did transfer to B the profit for the business as a whole would only be 150 – 65 – 35 = $50.

  • Author
    Posts
Viewing 2 posts - 1 through 2 (of 2 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • Iby2012 on Introduction to Financial Accounting – ACCA Financial Accounting (FA) lectures
  • Iby2012 on Introduction to Financial Accounting – ACCA Financial Accounting (FA) lectures
  • Iby2012 on Introduction to Financial Accounting – ACCA Financial Accounting (FA) lectures
  • baraka42 on PM Chapter 13 Questions Standard Costing and Basic Variance Analysis
  • baraka42 on PM Chapter 13 Questions Standard Costing and Basic Variance Analysis

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy