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In a company with the divisionalised structure division a transfer its output to division b. Division A produces just one item, component x and division b makes and sells the end product that requires one usint of compnent x
$ per unit is as follow:
MArginal cost of production in diviison a 24
Fixed overhead cost of production 9
Cost of selling in the external market 3
MArket price in the external market 48
Division b contribution from further processing
compnent x, before deducting the transfer cost 75Division a is working at full capapcity
What should be the minium transfer price per unit of component x in this situation>?
Please do not set test questions and expect an answer.
You must have an answer in the same book in which you found the question. Ask about whatever it is in the answer that you are not clear about, and then I will explain.
I replied to your post of yesterday and suggested that you watched my free lectures on transfer priding.
Have you watched the lectures??The answer cannot possibly be $750 unless you have not typed all of the question.
The marginal cost of production in A is 24. The lost contribution is 48 – 24 – 3 = 21.
Therefore the minimum transfer price is 24 + 21 = $45 per unit.
Have you watched the free lectures?
(If the question is in the BPP Revision Kit, then tell me the number of the question and then I will check it myself. But not until Thursday because I am away from home until then and do not have the Revision Kit with me.)
Why dint you take off fixed overhead while calculating lost contribution
48-24-4-9=12
Then MC+Lost contribution=36Thanks in advance
Also, lost contribution and opportunity cost is same?
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