Exercise 1229 10 minutes general transfer pricing

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if the divisions (which are profit centres themselves) are not forced to use the shared services unit. EXERCISE 12.29 (10 minutes) General transfer pricing rule: manufacturer 1 If the Assembly Division has spare capacity, there is no opportunity cost associated with a transfer. Therefore: Transfer price = outlay cost + opportunity cost = $450 + 0 = $450
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Last updated November 2018 $ 4 5 0 + $ 1 2 0 = $ 5 7 0 f o r g o n e c o n tr i b u ti o n m a r g i n $ 5 7 0 $ 4 5 0 = $ 1 2 0 3 If the Assembly Division has spare capacity and no outside market exists for the transferred component, the transfer price should be based on the variable cost per unit, $450, plus a small profit margin to provide an incentive for the Assembly Division to manufacture and transfer the component to the Electrical Division.
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Last updated November 2018 EXERCISE 12.30 (25 minutes) Cost-based transfer pricing: manufacturer Th e El ect ric al Di vis io n’s m an ag er is lik el y to rej ect th e sp eci al off er be ca us e th e El ect ric al Di vis io n’s in cr e m en tal co st on th e sp eci al or
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Last updated November 2018 de r ex ce ed s th e di vis io n’s in cr e m en tal re ve nu e: I n c r e m e n t a l r e v e n u e p e r u n i t o f t h e s p e c i a l
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Last updated November 2018 o r d e r I n c r e m e n t a l c o s t p e r u n i t t o t h e E l e c t r i c a l D i v i s i o n p e r u n i
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Last updated November 2018 t f o r t h e s p e c i a l o r d e r : T r a n s f e r p r i c e A d d i t i o n a l v a r i a b l e c o s t
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Last updated November 2018 T o t a l i n c r e m e n t a l c o s t L o s s p e r u n i t i n s p e c i a l o r d e r f o r t h e E l e c t r i
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Last updated November 2018 c a l D i v i s i o n Th e El ect ric al Di vis io n m an ag er’ s de cis io n to rej ect th e sp eci al or de r is no t in th e be st int er est s of th e co m pa
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Last updated November 2018 ny as a w ho le, sin ce th e co m pa ny ’s in cr e m en tal re ve nu e on th e sp eci al or de r ex ce ed s th e co m pa ny ’s in cr e m en tal co st. I n c r e m
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Last updated November 2018 e n t a l r e v e n u e p e r u n i t i n s p e c i a l o r d e r I n c r e m e n t a l c o s t t o c o m p a n
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Last updated November 2018 y p e r u n i t i n s p e c i a l o r d e r : U n i t v a r i a b l e c o s t i n c u r r e d i n A s s
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Last updated November 2018 e m b l y D i v i s i o n U n i t v a r i a b l e c o s t i n c u r r e d i n E l e c t r i c a l D i v i s
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Last updated November 2018 i o n T o t a l u n i t v a r i a b l e c o s t P r o f i t p e r u n i t i n s p e c i a l o r d e r f o r t h e
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Last updated November 2018 c o m p a n y a s a w h o l e Th e tra ns fer pri ce co ul d be set in ac co rd an ce wi th th e ge ne ral rul e, as fol lo ws : $ 4 5 0 + 0 * $
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Last updated November 2018 4 5 0 * Op po rtu nit y co st is zer o, sin ce the As se mb ly Di vis ion ha s sp are ca pa cit y. Th e As se m bl y Di vis io n wi ll wa nt to m ak e a pr ofi t on th e tra ns fer ,
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Last updated November 2018 so th at tra ns fer pri ce wi ll be $4 50 pl us a pr ofi t m ar gi n.
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