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Hello Sir,
Hope you are keeping well amid the Covid situation around the world!
Can you please help me the below question:
Manuco company has been offered supplies of special ingredient 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 25% fixed. Internal transfers to Manuco
would enable $1.50 per kg of variable packing cost to be avoided.My Ques- How is the variable cost of 9 (as per the answer) is calculated ?
Since $15 is cost plus 25%, the full cost is 100/125 x $15 = $12.
The variable cost is 75% of the full cost and is therefore 75% x $12 = $9.
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