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Hi sir,
Could you please explain to me, in general, what are the cost components of the transfer price? (variable cost or the full cost of the supplying division). I mean if the question says nothing about the way of calculating the cost and just gives the details about the variable cost, fixed cost and transfer price. How to calculate the profit?
If you are asked for profit then you have to deduct the fixed cost from the group. The difference between profit and contribution is that fixed cost is deducted.
With variable cost then this refers to calculating a transfer price which covers marginal cost and adds any lost contribution if appropriate as per normal transfer pricing rules.
Hope that explains – if you would like to give me an example of a question where its uncertain – I can have a closer look,
Many thanks
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