TP Company has two divisions, B1 and B2. B1 produces a part that is used in the finished product of B2. The costs of producing each part are: Materials, B4; Labor, P2; Variable overhead, P2 and Fixed cost, P2. The part is sold in a perfectly competitive market for ₽12 each. B2 is buying 60% of the output of B1 currently at a negotiated price of P11 each. Due to emphasis on divisional welfare rather than company welfare, a new transfer price is planned to be used. The suggestion was to add 40% to the full cost of the part when transferred to B2. Another proposal was to use the variable costs per part in arriving at the transfer price. Calculate.

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To calculate the transfer price using the suggested method of adding 40 to the full cost ... View the full answer