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Ash Ltd has two divisions, Division A and Division B . Division A manufactures component Beta, of which variable cost is 1 8 per unit.
Ash Ltd has two divisions, Division A and Division B Division A manufactures component Beta, of which variable cost is per unit. The annual capacity of Division A is units and all are transferred to division B Division B incurs extra cost of to transform component Beta into component Gama, which is sold to the external market for each.
Required:
I. If the marginal costing pricing approach is used, identify the transfer price, the profit margin of each division, and explain why the manager of division A may consider the transfer price based on marginal costing unfair. Suggest any amendments that may be required to make the transfer price a fair price for division A
II In the case that there is an external demand for units of component Beta at a market price of what price could Division A argue should be used as the transfer price and why?
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