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Hi John! I have a question regarding transfer pricing in terms of limiting factors (for instance time). Suppose we should sell an item with a higher contribution per hour (let’s say we are considering TP for product X with a contribution of $ 10 per hour versus product Y with a contribution of $8 per hour) to division B. My question is: should I consider a lost contribution of $8 in the calculation of TP for product X (I mean should the minimum TP be equal to 8 + variable costs, or only variable costs)?
By the way, your lectures are brilliant, many thanks for your support!
Thank you for your comment 🙂
The TP will be the variable costs of X plus the lost contribution by not making Y.