Divisional Transfer Pricing

Transferor does not transferor does have

have external market external market

Full Yost Plus

Idle Capacity

YESL No

Marginal Standard Full cost t Market Negotiated

lost cost markup pay Price
cost plus Based Based Based

A B
Company
Sales To external 16 16
To transferee
y
Costs own cost 10 s 15

transfer
IF
cost

Profit 2 I

Exe
117 Shared
profit relative to cost

Volume No
of cartoons 5000 8001
Sales 200,000 300,000
H Costs Production Division 120,0001 180.0007

750001 80,000
Packaging Division
Profit doo 40,0000

Dist of profit based on Relative cost

5001 8001
Share Production Division
of
15
sootioooliasooo 4005

Share 1923 12308

of Packaging Division
 i Transfer Price 5001 8001
Costs Packaging 75000 80000
Manly
It Allocated profit
13 433

no units
of 9

Cii Market Price Method

Packing Division Sales

1 451
costs
many
Profit 1
Production Division Sales 200,000 300.000
H own cost 120000 180000

Transf price
Profit 417
5 Total Profit 5000 40000

3 Goal Congruence
 Minimum Additional outlay cost t opportunity cost
Transfer price per unit p.ie

it there no external market i opportunity cost o

Min 10 pin
i Ivanif price

Maximum Transfer Net Marginal Revenue w e is

Price External Price u lower
ii CALA External price 14
i Max T P 14
Net MR 20 5 15
5 10
Range
Iyo promote goal congruence
CAJERE External Price 18 Max T P 15

Net Mil 20 g
i 10 15
Range
To promote Goal congruence

iii thin TP M L t Opp Cost

10 12 10 112
Max Tip External price 14

Net MR 20 5 15

Range 12 14

Ideal TP should be 12 so that Div A can

achieve same profitability as external sales
while Div B can purchase material
at much lower cost than Market

If supplying Division Min T Marginal cost p.m

has excess
capacity
 International transfer Plicing

Add contribution net tax 2000 x 3000 100 30 7

off
42,00 000

Incremental cost net off tax sooo x 10000 9000 100 401
3000,000
I Net Benefit 1200000