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- This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.

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- November 19, 2015 at 10:14 am #283886
Sir can u pls explain the answer of this question

Manuco has been offered supplies of special ingredient of Z at a transfer price of $15 per kg by Helpco company, which is part of the same group of companies. Helpco processes and sells special ingredient Z to customers external to the group at $15 per kg. Helpco bases its transfer price on full cost plus 25% profit mark-up. The full cost has been estimated as 75% variable and and 25% fixed. Internal transfers to Manuco wopuld be enable $1.50 per kg of variable packing cost to be avoided.Discuss the transfer price at which helpco should offer to transfer special ingredient Z to Manuco.

1) Helpco has production capacity for 9000 kg of special ingredient Z, AN external maeket is available for 6000 kgs of material Z.The answer was: VC – Packaging cost

(9- 1.50)= 7.50

Working for VC: Total cost= 15 x 80% = $12, Variable cost – $12 x 75%= 9I’m confused on how did they get 80%, and why did they multiply it by 15.

November 19, 2015 at 11:07 am #283909They are selling at cost + 25%.

So for every $100 cost, they add on $25, and sell for $125.

Putting it the other way round, for every $125 sales they have a cost of $100, which is 100/125 or 80% of the selling price.

Since they are actually selling at $15 per kg, the cost must be 80% x $15 = $12 per kg.

(and of course it checks – the profit is 25% x $12 = $3, which is also the difference between $15 and $12)

November 19, 2015 at 1:48 pm #283938ok thank u sir 🙂

November 19, 2015 at 2:29 pm #283950You are welcome 🙂

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