T10(part1) - .15 Division A transfers 100,000 units of a component to Division B each year The market price of the component is 25 per unit Division A's

T10(part1) - .15 Division A transfers 100,000 units of a...

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Tutorial 10 20 . 1 5 Division A transfers 100,000 units of a component to Division B each year. The market price of the component is £25 per unit. Division A's variable cost is £15 per unit. Division A's fixed costs are £500,000 each year. What price per unit would be credited to Division A for each component that it transfers to Division B under marginal cost pricing and under two-part tariff pricing (where the Divisions have agreed that the fixed fee will be £200,000)? Marginal cost pricing Two-part tariff pricing A £15 £15 B £25 £15 C £15 £17 D £25 £17 Answer 20.15 The loss of contribution (profits) in Division A from lost internal sales of 2 500 units at £18 (£40 – £22) is £45 000. The impact on the whole company is that the external purchase cost is £87 500 (2 500 x £35) compared with the incremental cost of manufacture of £55 000 (2 500 x £22). Therefore the company will be worse off by £32 500. Answer = D Answer 20.16 The dual market price in respect of Division A will be the market price of £25. The two- part tariff transfer price per unit is the marginal cost of £15.
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  • Spring '16
  • Economics, Tutorial, MANAGEMENT ACCOUNTING II, UKAM2043, UTAR, Division B

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