fansjer Pricing Example 3: Tripod Ltd. has three divisions 2 X, Y and Z, which make products X, Y and Z respectively. For division Y, the only direct material is product X and for Z, the only direct material is product Y. Division X purchases all its raw material from outside. Direct selling overhead, representing commission to external sales agents are avoided on all internal transfers. Division Y additionally incurs 10 per unit and Rs. 8 per unit on units delivered to external customers and Z respectively. Y also incurs 6 per unit picked up from X, whereas external suppliers supply at Y's factory at the stated price of 85 per unit. Additional information is given below: Figures Rs./unit X Y Z Direct materials (external supplier rate) 40 85 135 Direct labour 30 50 45 15 15 10 Sales Agent's commission Selling price in external market 110 170 240 Production capacity 20,000 30,000 40,000 units 14,000 External demand 26,000 42,000 units You are required to discuss the range of negotiation for Managers X, Y and Z, for the number of units and the transfer price for internal transfers. [Nov 2008 (New)] Solution: fansjer Pricing Example 3: Tripod Ltd. has three divisions 2 X, Y and Z, which make products X, Y and Z respectively. For division Y, the only direct material is product X and for Z, the only direct material is product Y. Division X purchases all its raw material from outside. Direct selling overhead, representing commission to external sales agents are avoided on all internal transfers. Division Y additionally incurs 10 per unit and Rs. 8 per unit on units delivered to external customers and Z respectively. Y also incurs 6 per unit picked up from X, whereas external suppliers supply at Y's factory at the stated price of 85 per unit. Additional information is given below: Figures Rs./unit X Y Z Direct materials (external supplier rate) 40 85 135 Direct labour 30 50 45 15 15 10 Sales Agent's commission Selling price in external market 110 170 240 Production capacity 20,000 30,000 40,000 units 14,000 External demand 26,000 42,000 units You are required to discuss the range of negotiation for Managers X, Y and Z, for the number of units and the transfer price for internal transfers. [Nov 2008 (New)] Solution