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Chapter 9
3.3 Scenario 3: the selling division does not have surplus capacity
Transfer price
negotiated
between
Minimum price selling division will Maximum price buying
accept = marginal cost + lost division will pay, which is
contribution from other product
(opportunity cost) lower of
External purchase Net marginal revenue i.e.
price of transferred selling price minus
products marginal cost of buying
division’s final product
Illustrations and further practice
Now do example 4 ‘No Spare capacity’ from Chapter 9.
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