ILLUSTRATIVE EXAMPLE: XYX Company is trying to determine the possible transfer price of item 2345LO between Philippine department (selling party) and China department (buying party). Below is information in relation to item 2345LO: Selling price P500 Cost of production: Direct materials P200 Direct labor P200 Variable OH P 40 Fixed OH P 80 The negotiation between the parties concluded that the price of the said product is P470. From the information above, we are required to determine the transfer price assuming: a. Market Price is used b. Cost-price is used c. Negotiated Price is used To answer those requirements: a. If the market price is used as the transfer price it is simply the selling price of P500. b. If the cost price is used as the transfer price is simply the sum of Direct Materials, Direct Labor and Variable OH and the allocated Fixed OH, which totalled to P520. If the fixed is assumed as non-allocated fixed cost, the transfer would be P440. c. If the negotiated price is used as transfer price, it is simply the amount of P470. EXERCISE: Division A of Tripper Company produces a part that it sells to other companies. Sales and cost data for the part follow: Capacity in units 60,000 Selling price per unit P 40 Variable costs per unit .P 28 Fixed costs per unit at capacity P 9 Division B, another division of Tripper Company, would like to buy this part from Division A. Division B is presently purchasing the part from an outside source at P38 per unit. The negotiation between the parties concluded that the price of the said product is 10% less than its price to outsiders. From the information above, we are required to determine the transfer price assuming: a. Market Price is used b. Cost-price is used c. Negotiated Price is used