Division A transfers 100 000 units of a component to Division B each year. The market price
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Division A transfers 100 000 units of a component to Division B each year.
The market price of the component is £25.
Division A’s variable cost is £15 per unit.
Division A’s fixed costs are £500 000 each year.
What price would be credited to Division A for each component that it transfers to Division B under:
(i) dual pricing (based on marginal cost and market price)?
(ii) two-part tariff pricing (where the Divisions have agreed that the fixed fee will be £200 000)?
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