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Transfer Pricing

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

  • This topic has 0 replies, 1 voice, and was last updated 9 years ago by Henry.
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  • November 15, 2015 at 6:52 pm #282681
    Henry
    Member
    • Topics: 4
    • Replies: 2
    • ☆

    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

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