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Mock test 3 – BPP krevision kit, page 310. Question 5
How come the answer is $750?The marginal cost of producing 1 unit of X is $270, and it takes 6 hours to produce.
If they produce X then they lose production of Y. Y is earning a contribution of $320 per unit, and takes 4 hours, so a contribution of $80 per hour.
Therefore the minimum transfer price for X is $270 + (6 x $80) = $750.
(This is similar to one of the examples in my free lecture on transfer pricing. The lectures are a complete free course for Paper PM and cover everything needed to be able to ass the exam well.
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