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Transfer pricing

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Transfer pricing

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
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  • June 12, 2021 at 6:25 am #624874
    xyzc
    Participant
    • Topics: 362
    • Replies: 130
    • ☆☆☆

    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?

    June 12, 2021 at 7:58 am #624900
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51573
    • ☆☆☆☆☆

    It does not seem that you have copied the entire question.

    However the net marginal revenue is not 50, it is 150 – 65 = $85.

    June 12, 2021 at 8:50 am #624907
    xyzc
    Participant
    • Topics: 362
    • Replies: 130
    • ☆☆☆

    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?

    June 12, 2021 at 3:27 pm #625093
    John Moffat
    Keymaster
    • Topics: 56
    • Replies: 51573
    • ☆☆☆☆☆

    Net 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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