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Transfer Pricing Internally between Divisions

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Transfer Pricing Internally between Divisions

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • April 22, 2021 at 7:56 pm #618546
    jkalou
    • Topics: 2
    • Replies: 1
    • ☆

    So i am having a struggle with this exercise.
    The company XYZ have two divisions, the Division A and the Division B.
    Division B monthly purchase 10.000 units to Division A, using as PTI total cost plus
    5%. It is also known that the fixed costs incurred corresponding to 33% of total cost.
    However, the Division A modernized its production equipment and wants to increase
    the PTI to 18 euros/units.
    The manager of Division B argues that it cannot support the new value as this would
    lower their results to close to zero. Alternatively, the Division B can buy to an external
    supplier for 16,5 euros/ unit., benefiting in this case a 45-day payment (cost of capital
    opportunity is 4% / quarter). The Division A has no alternative use for this material.
    Request:
    Setting a price range for this transaction.

    April 23, 2021 at 7:31 am #618566
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49595
    • ☆☆☆☆☆

    A question could not be asked in this form in the real exam.

    However, as I explain in my free lectures, the minimum transfer price will be the marginal cost of production in Division A. The maximum transfer price will be the external purchase price.

    April 26, 2021 at 1:45 pm #618883
    jkalou
    • Topics: 2
    • Replies: 1
    • ☆

    Hello,thanks for you replying.

    Could you be more specific on this exercise, using numbers ?

    I will appreciate your answer because i get frustrated on this one.

    Thank you in advance

    April 26, 2021 at 3:23 pm #618888
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49595
    • ☆☆☆☆☆

    I cannot spend the time on this because, as I wrote before, a question could not be asked in this form in the Paper PM exam.

    Have you watched my free lectures on this?

    Also, which are you attempting a question for which you do not have an answer. You should be using a Revision Kit from one of the ACCA Approved Publishers. This forum exists for you to ask about anything you are not clear about in our lectures or in past exam questions. It is not to provided with full answers to full questions 🙂

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    Posts
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