Ash Ltd has two divisions, Division A and Division B . Division A manufactures component Beta, of
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Question:
Ash Ltd has two divisions, Division A and Division B Division A manufactures component Beta, of which variable cost is per unit. The annual capacity of Division A is units and all are transferred to division B Division B incurs extra cost of to transform component Beta into component Gama, which is sold to the external market for each.
Required:
I. If the marginal costing pricing approach is used, identify the transfer price, the profit margin of each division, and explain why the manager of division A may consider the transfer price based on marginal costing unfair. Suggest any amendments that may be required to make the transfer price a fair price for division A
II In the case that there is an external demand for units of component Beta at a market price of what price could Division A argue should be used as the transfer price and why?
Related Book For
Management and Cost Accounting
ISBN: 978-1405888202
4th edition
Authors: Alnoor Bhimani, Charles T. Horngren, Srikant M. Datar, George Foster
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