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transfer pricing

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

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by John Moffat.
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  • Author
    Posts
  • December 1, 2022 at 1:54 pm #673031
    noitiut
    Participant
    • Topics: 15
    • Replies: 7
    • ☆

    The following question is from an examiner report
    Conference Co has a divisionalised structure. One of its divisions, Division X, sells all its output to other divisions within the company.
    Division X’s annual budgeted output and costs are as follows:
    Units sold 1,050
    Direct materials $22,500
    Direct labour $45,350
    Overheads (40% variable) $37,150
    What transfer price per unit will result in a profit margin of 20% for Division X (to the nearest
    whole $)?

    The examiner has used the full COP to then calculate the transfer price. So the and he provided is 125
    I thought the selling division sets the minimum transfer price which is the marginal cost in this case. why has the examiner included fixed costs Sir?

    December 1, 2022 at 5:18 pm #673065
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54757
    • ☆☆☆☆☆

    The question is not asking for the minimum transfer price.

    It is asking what TP will give a profit margin of 20% to Division X. Profit is after all costs including fixed costs.

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