Question
Company A & B are both parts of the same Group i.e. ABC Group. Owing to special orders, company A sells one of its products
Company A & B are both parts of the same Group i.e. ABC Group. Owing to special orders, company A sells one of its products to company B. The product cost Rs. 150 for Materials, Rs.50 for Labour, Rs. 10 for Variable Overheads, and Rs. 100 for Fixed Overheads. The companys profit on this product (from external customer) is Rs. 50 per unit. Currently, company A has enough idle capacity to process the order for company B. What will be the minimum acceptable transfer price for the product? Explain why have you suggested this price to be the minimum acceptable price? *
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