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Hi,sir.i have a question about transfer pricing in the technical articles.it is said that the economic transfer price is>= marginal cost(variable cost?) of the transfer out division and <=net marginal cost of the transfer in division in example2. The marginal cost is 18, the fixed cost is 12 in the transfer out division,so the minimum transfer price is 18 which could not compensate the fixed cost,then transfer out division is unwilling to transfer at price 18,right?i think the minimum transfer price should be 30(18+12) the full cost other than the marginal cost.besides,the maximum tansfer price should be outside selling cost minus the full own cost of the transfer in division,otherwise,the transfer in division will be loss making due to fixed cost uncovered.
You really do need to watch the free lectures where all of this is explained!!!
Unless told otherwise we always assume that the transferring division produces lots of different products – we are only dealing with one of them. So the fixed costs will be incurred whatever happens. Therefore we only need to cover the marginal cost per unit on the product we are considering.
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