costing:- Transfer pricing
q.12.how is it solved?
Costing transfer pricing
Neha Hir (31 Points)
23 May 2019
6 Replies
v koushikan
(articles)
(44 Points)
Replied 23 May 2019
They are considering whether the production of product P should be cut down to meet the division B requirements. Because here labour hour's is bottleneck .
sachin
(sachin)
(415 Points)
Replied 23 May 2019
Part( ¡¡) of the sum specifies transfer price of 43.11 for 7333 units.
Here, analyze 3 things to understand clearly:
1. First of all understand that division B is accepting part supplies and not full supplies.
2. Imagine external sales and internal sales of product S as two different products so that you can understand the contribution ranking table in part (¡¡) and reason out why product P is not considered.
3. So, only the opportunity cost for transfer 7333 units of S is considered. Which is, contribution lost on product P net of specific fixed cost and then, additional fixed cost for product S. [ why additional cost?- because, totally 25333 units of product S is being produced, so additional 18000 for 5333 additional units]
To conclude: transfer price = [variable cost + opportunity cost]/ No. Of units transferred.
= 37+ [(26832+18000) ÷7333]
=43.11
Hope you are clear now. Cheers
Here, analyze 3 things to understand clearly:
1. First of all understand that division B is accepting part supplies and not full supplies.
2. Imagine external sales and internal sales of product S as two different products so that you can understand the contribution ranking table in part (¡¡) and reason out why product P is not considered.
3. So, only the opportunity cost for transfer 7333 units of S is considered. Which is, contribution lost on product P net of specific fixed cost and then, additional fixed cost for product S. [ why additional cost?- because, totally 25333 units of product S is being produced, so additional 18000 for 5333 additional units]
To conclude: transfer price = [variable cost + opportunity cost]/ No. Of units transferred.
= 37+ [(26832+18000) ÷7333]
=43.11
Hope you are clear now. Cheers
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