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I have two questions. I appreciate if u answer both of them.
1) Where there is a limited capacity calculated minimum transfer price by:
Variable cost + opportunity cost
And opportunity cost only arise in limited capacity questions. Otherwise there will be no opportunity cost in unlimited capacity questions because we can sell both internally n externally. Am i right?
2) But in example 6 of notes, we have limited capacity and there is a choice either to sell to div B at variable cost of $15 or to sell externally at $20. In this case we choose $20 but why? The rule was the minimum transfer price can be found on variable cost of $15. Isn’t it?
What you write in your first statement is correct.
Example 6 is an example of what you have written in your first statement!!
There is limited capacity and so the minimum transfer price is the variable cost of $15 plus the lost contribution from not selling externally of $5 ($20 – $15) and so is $20.I assume that you are watching the lectures and not just using the lecture notes on their own, which would be pointless because the lecture notes are not meant to be a study text. It is in the lectures that I work through the examples and explain and expand on the notes. If you are not watching the lectures for any reason then you must buy a Study Text from one of the ACCA Approved Publishers and study from there.
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