Advance Management Accounting (transfer price)

AdvanceManagement Accounting (transfer price)

Question1

Solution

Current income from external sales

10

Contribution (20-12)

8

Contribution from internal transfer

18

Transferprice= $ 18

Thetransfer price in this scenario is $ 18. A price of $ 18 is less thatdivision Y cost of purchase from an outside supplier of $ 20 but italso exceeds division Z production cost of $ 10. In this scenario,both division Y and Z will benefit.Question2Solution

Details

Dango

Current income from external sales

$ 16

Contribution (15-10)

-5

Transfer price

$ 11

Inthis scenario, the transfer price is $ 11. A price of $ 11 is lessthan Division A cost of purchase from an outside supplier of $ 15 butit also exceeds division B cost of production of $ 10. The pricerange that would satisfy both divisions is between $ 10 and $ 15.