Costing transfer pricing

practice manual sum?

Yes.. part ii.of the sum is not clear.

They are considering whether the production of product P should be cut down to meet the division B requirements. Because here labour hour's is bottleneck .

Part( ¡¡) of the sum specifies transfer price of 43.11 for 7333 units.
Here, analyze 3 things to understand clearly:
1. First of all understand that division B is accepting part supplies and not full supplies.
2. Imagine external sales and internal sales of product S as two different products so that you can understand the contribution ranking table in part (¡¡) and reason out why product P is not considered.
3. So, only the opportunity cost for transfer 7333 units of S is considered. Which is, contribution lost on product P net of specific fixed cost and then, additional fixed cost for product S. [ why additional cost?- because, totally 25333 units of product S is being produced, so additional 18000 for 5333 additional units]

To conclude: transfer price = [variable cost + opportunity cost]/ No. Of units transferred.
= 37+ [(26832+18000) ÷7333]
=43.11

Hope you are clear now. Cheers

thank you! the doubt is cleared.

Hican you please solve this doubt solve