## Question

# Explain 41. If a transfer price of P 84 is determined using the transfer pricing formula and the lost contribution margin per unit on

Explain

41. If a transfer price of P 84 is determined using the transfer pricing formula and the lost contribution margin per unit on

outside sales is P 28, then the variable cost per unit must be

a. P 3 c. P 112

b. P 56 d. P 2,352

42. Division A has the capacity for making 3,000 motors per month and regularly sells 1,950 motors each month on the

intermediate market at a contribution margin of P 62 per motor. Division B, a sister division, would like to obtain 1,400

motors each month from Division A. In computing a transfer price per motor using the transfer pricing formula, the lost

contribution margin per unit portion of the transfer price computation would be

a. P 26.57 c. P 35.70

b. P 15.50 d. P 62.00

Items 43 to 45 are based on the following information

ABC and XYZ are the only two divisions in the Alphabet Company. ABC makes and sells units that can be sold either to

outside customers or to XYZ. The following data are available from last month:

ABC Division:

Unit selling price to outside customers P 45

Unit variable costs when sold to outside customers P 30

Capacity in units 12,000

Units sold to outside customers 6,000

XYZ Division:

Number of units needed per month 4,000

Unit price paid to an outside supplier P 42

If ABC sells the units to XYZ, ABC can avoid P 2 per wheel in sales commissions.

43. What transfer price would be used according to the transfer pricing formula?

a. P 28 c. P 42

b. P 30 d. P 45

44. What is the maximum price per wheel that XYZ should be willing to pay ABC if a transfer were to take place?

a. P 28 c. P 42

b. P 30 d. P 45

45. Suppose that ABC sells 9,000 units each month to outside customers and the transfer pricing formula is used to determine

the transfer price, what is the appropriate transfer price per unit?

a. P 29.50 c. P 39.25

b. P 31.75 d. P 42.00

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