Question 3 Alan Supercenter has two profit centres, Centre A and Centre B. A divisional...
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Question 3 Alan Supercenter has two profit centres, Centre A and Centre B. A divisional head is responsible for the smooth and efficient operation of each division. Centre A supplies Centre B with a part-finished product. Centre B completes the production and sells the finished units in the market at $70 per unit. There is no external market for Centre A's part-finished product. Budgeted data for the year: Division Division A B No of units transferred/sold 20,000 20,000 Material cost per unit $16 Other Variable cost $8 $6 Annual Fixed cost $120,000 $60,000 A. Explain the term 'transfer pricing." B. Outline THREE (3) characteristics of a good transfer price. C. Calculated the budgeted annual profit for each division and for the company as a whole if the transfer price for the components supplied by division A to division B is: i. Full cost ii. Marginal cost plus 20% D. Evaluate both transfer prices from the perspective of each individual division and from the perspective of the company as a whole
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