Scribd
Upload
8 views2 pages

Exercise TP

The document presents four problems related to transfer pricing within companies with different divisions. Each problem outlines specific data regarding costs, capacities, and market prices, and requires calculations for minimum and maximum transfer prices, as well as opportunity costs. The scenarios vary based on whether divisions have excess capacity or are operating at full capacity.

Uploaded by

2vtypzx72m
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
8 views2 pages

Exercise TP

The document presents four problems related to transfer pricing within companies with different divisions. Each problem outlines specific data regarding costs, capacities, and market prices, and requires calculations for minimum and maximum transfer prices, as well as opportunity costs. The scenarios vary based on whether divisions have excess capacity or are operating at full capacity.

Uploaded by

2vtypzx72m
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Practice Exercises for TRANSFER PRICING

PROBLEM 1

ABC Manufacturing Company has two divisions:


• Division A (Producing Division) manufactures a component
• Division B (Buying Division) uses the component to produce a final product

Given data:
• Variable cost per unit (Division A): ₱200
• Fixed cost per unit (Division A): ₱50
• Total cost per unit: ₱250
• External market price of the component: ₱320
• Division A has excess capacity
• Division B needs 1,000 units

Required:
1. What is the minimum transfer price?
2. What is the maximum transfer price?
3. What transfer price range will motivate both divisions to accept the transfer?

PROBLEM 2

Transfer Pricing — WITH Excess Capacity

XYZ Corporation has two divisions.


Division X (Produing Division):
• Variable cost per unit: ₱150
• Fixed cost per unit: ₱60
• External market price: ₱260
• Has excess capacity

Division Y (Buying Division):


• Needs 2,000 units
• External supplier price: ₱260

Required:
1. How much is the opportunity cost per unit?
2. What is the minimum transfer price?
3. What is the maximum transfer price?
4. What transfer price range will motivate both divisions to accept the transfer?

PROBLEM 3

Transfer Pricing — NO Excess Capacity

Division A produces a component used by Division B.


• Variable cost: ₱180 per unit
• Selling price externally: ₱300 per unit
• Variable selling cost: ₱20 per unit
• Division A is operating at full capacity
• Division B needs 1,000 units
Required:
1. How much is the lost contribution margin per unit?
2. What is the minimum transfer price?
3. What is the maximum transfer price?
4. What transfer price range will motivate both divisions to accept the transfer?

PROBLEM 4

Transfer Pricing — Philippine CPA-Style Comprehensive Problem

ABC Realty Corporation has two divisions.


Division R (Raw Materials):
• Variable cost: ₱120
• Fixed cost: ₱40
• Market price: ₱220
• No excess capacity

Division C (Construction):
• Needs 5,000 units
• External purchase price: ₱220

Required:
1. How much is the opportunity cost?
2. What is the minimum transfer price?
3. What is the maximum transfer price?

You might also like