Division B's selling price per unit is 150. Variable cost per unit ( division B does not include the cost of X) is 65. Cost of X purchased from outside suppliers is 35. Contribution margin per unit is 50.
The net marginal revenue is 50 which is the same figure as contribution margin per unit. Is it correct?
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Transfer pricing
5y ago#1It does not seem that you have copied the entire question.
However the net marginal revenue is not 50, it is 150 - 65 = $85.
The external purchase cost of 35 is also a marginal cost, so why has it not been subtracted from the revenue to arrive at the net marginal revenue?
5y ago#3Net marginal revenue is the selling price less any extra costs incurred by the division (but not including the amount paid either externally or to the other division).
I explain this, and the reasons that this is the case, in my free lectures on transfer pricing.
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