- May 24, 2017 at 11:11 am #387808melonny05Member
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please could you explain ‘ Rotech group June 2014 3b question’?May 24, 2017 at 3:43 pm #387866John MoffatKeymaster
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Given that you must have a printed answer to the question, it would be better if you were to ask about whichever part of the answer is not clear.
As far as the maximum price is concerned, the most that Gearbox will be prepared to pay is the price that they are offered from the external supplier.
As far as the minimum price that C will be prepared to charge, they are currently selling 8,010 externally but because this is only 60% of the demand, they could sell another 40/60 x 8,010 = 5,340. They will therefore only sell these to Gearbox provided they can charge at least 5,340. This would bring their total sales up to 13,350. At present, they have total sales of 15,560, and so the extra 15,560 – 13,350 = 2,210 could be sold to Gearbox at marginal cost (because there is nowhere else they can sell them) and the marginal cost is 40% x 2,210 = 884.
So the total minimum transfer price = 5,340 + 884 = 6,224.
(Have you watched my free lectures on transfer pricing?)
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