This objective test question contains a question type which will only appear in a computer-based exam, but this question provides valuable practice for all students whichever version of the exam they are taking. TM plc makes components which it sells internally to its subsidiary RM Ltd, as well as to its own external market. The external market price is $24.00 per unit, which yields a contribution of 40% of sales. For external sales, variable costs include $1.50 per unit for distribution costs, which are not incurred on internal sales. TM plc has sufficient capacity to meet all of the internal and external sales. The objective is to maximise group profit. At what unit price should the component be transferred to RM Ltd?
【参考答案及解析】
We must set a price high enough for TM to cover its costs, but not so high that RM cannot make a profit. For TM, an item sold externally has VC of 60% × $24.00 = $14.40. Of this, $1.50 will not be incurred on an internal transfer so it is not relevant here, VC on internal transfer = $14.40 – $1.50= $12.90. We do not know RM’s cost structure, so we leave the price at $12.90; this will ensure that RM is not discouraged from taking an internal transfer when it is profitable to do so.
We must set a price high enough for TM to cover its costs, but not so high that RM cannot make a profit. For TM, an item sold externally has VC of 60% × $24.00 = $14.40. Of this, $1.50 will not be incurred on an internal transfer so it is not relevant here, VC on internal transfer = $14.40 – $1.50= $12.90. We do not know RM’s cost structure, so we leave the price at $12.90; this will ensure that RM is not discouraged from taking an internal transfer when it is profitable to do so.