Perrin Co has two divisions,
A、and B. Division
A、has limited skilled labour and is operating at full capacity making product Y. It has been asked to supply a different product, X, to division B. Division
B、currently sources this product externally for $700 per unit. The same grade of materials and labour is used in both products. The cost cards for each product are shown below: Product Y X ($)/unit ($)/unit Selling price 600 – Direct materials ($50 per kg) 200 150 Direct labour ($20 per hour) 80 120 Apportioned fixed overheads ($15 per hour) 60 90 Using an opportunity cost approach to transfer pricing, what is the minimum transfer price?
A、$270
B、$750
C、$590
D、$840
A、and B. Division
A、has limited skilled labour and is operating at full capacity making product Y. It has been asked to supply a different product, X, to division B. Division
B、currently sources this product externally for $700 per unit. The same grade of materials and labour is used in both products. The cost cards for each product are shown below: Product Y X ($)/unit ($)/unit Selling price 600 – Direct materials ($50 per kg) 200 150 Direct labour ($20 per hour) 80 120 Apportioned fixed overheads ($15 per hour) 60 90 Using an opportunity cost approach to transfer pricing, what is the minimum transfer price?
A、$270
B、$750
C、$590
D、$840
【参考答案及解析】
Using the opportunity cost approach to transfer pricing, the minimum price charged by the transferring division must be the marginal (variable) cost of producing X + the contribution that is lost from selling however many units of Y could have been made for each X. ‘Division A has limited skilled labour’ means that skilled labour is a scarce resource. If Division A now has to make X instead of Y, it will lose the contribution it currently makes on Product Y. This contribution is equal to $600 selling price – $200 Material costs – $80 labour costs = $320. It takes 4 hours to make a Y and 6 hours to make an X. So, every time we (in Division A) make an X, we will not make 1.5Ys because of the shortage of skilled labour. So we lose 1.5 Y × Contribution per unit $320 = $480. We add to this lost contribution a marginal cost of making an X of $150 (material) + $170 (labour). Total transfer price = $480 + $150 + $120 = $750 Therefore, if Division A is to be no worse off by selling Product X to Division B instead of Product Y externally, the contribution per labour hour from selling X must also be $80. The opportunity cost is therefore $80 per labour hour. Since it uses 6 labour hours to make one unit, one unit must generate a contribution (i.e. opportunity cost in this context) of 6 × $80 i.e. $480. To arrive at a minimum transfer price, the marginal cost of producing X must be added. Total variable cost per unit of X = $150 + $270. Therefore, the minimum transfer price is $750.
Using the opportunity cost approach to transfer pricing, the minimum price charged by the transferring division must be the marginal (variable) cost of producing X + the contribution that is lost from selling however many units of Y could have been made for each X. ‘Division A has limited skilled labour’ means that skilled labour is a scarce resource. If Division A now has to make X instead of Y, it will lose the contribution it currently makes on Product Y. This contribution is equal to $600 selling price – $200 Material costs – $80 labour costs = $320. It takes 4 hours to make a Y and 6 hours to make an X. So, every time we (in Division A) make an X, we will not make 1.5Ys because of the shortage of skilled labour. So we lose 1.5 Y × Contribution per unit $320 = $480. We add to this lost contribution a marginal cost of making an X of $150 (material) + $170 (labour). Total transfer price = $480 + $150 + $120 = $750 Therefore, if Division A is to be no worse off by selling Product X to Division B instead of Product Y externally, the contribution per labour hour from selling X must also be $80. The opportunity cost is therefore $80 per labour hour. Since it uses 6 labour hours to make one unit, one unit must generate a contribution (i.e. opportunity cost in this context) of 6 × $80 i.e. $480. To arrive at a minimum transfer price, the marginal cost of producing X must be added. Total variable cost per unit of X = $150 + $270. Therefore, the minimum transfer price is $750.