Hello John thanks for all the work and help you have dedicated to help us students pass surely i have learnt alot from your lectures. Please help qn says Company is divisionalised into A & B Div A produces just one item, component X. Div B makes and sells an end product that requires one unit of component x.
Marginal cost of production in Div A $8, pu
Fixed oh cost $3pu
Market price in external market $16pu
Div B contribution from further processing componet X, $25pu before deducting the transfer price. Div A is not working at full capacity and can meet in full external demand and the demand from Div B for internal transfers. What should the minimum transfer price per unit and max transfer price pu for component x in this situation.
A min $8 & max 16, B min $8 & max $25 C min $11 & max $16, D min $11 & max $25 My answer i thought would be A coz what ever happens Div A cant supply below 8 but also it can meet the demand of external market so supplying Div B it will not be loosing out why is the Answer B i would please request more explanation to understand better thanks