For two other production units (production of component C and end product E) the company intends to implement a dual pricing system.

Controlling provides the following statements about the calculation of end product E:

1. The production of one unit of product E requires five units of component C.

2. The per-unit contribution margin³ of product E equals two thirds of the variable per-unit costs of product E (for centralised cost calculation).

3. The difference of the maximum transfer price v_max [€ per unit C] and the minimum transfer price v_min [€ per unit C] equals 40,-- €.⁴

4. The operational profit [€] of product E equals the fixed costs [€] of product E.

5. The total costs [€] in component C-production equal 60% of the total costs [€] in end product E-production which include the costs (charged by corporate centre) for the delivered (five) components C.

e) Please calculate the single elements of dual pricing systems which matches the five before mentioned requirements. Calculate the transfer prices v_max and v_min [€ per unit C]. Please use the provided form for your dual-pricing system.

Note:

3 The contribution margin is calculated as the difference between revenues and variable costs and equals the sum of fixed costs and operational profit. 4 Applied calculation methods: cost plus method and resale-price method.

E-Production C-Production Corporate Centre Revenues/ Sales Revenues/ Sales Revenues/ Sales Costs (E-Prod.) Costs Costs Costs (C-Deliv.) Profit I Profit I Profit I Loss Assignment Loss Assignment Loss Assignment Profit II Profit II Profit II