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Management Accounting for Decision Makers 6th edition_10

Tham khảo tài liệu 'management accounting for decision makers 6th edition_10', kinh doanh - tiếp thị, quản trị kinh doanh phục vụ nhu cầu học tập, nghiên cứu và làm việc hiệu quả | 394 CHAPTER 10 MEASURING PERFORMANCE Activity 10.20 continued For Devon the budgeted profit under each transfer pricing policy will be Variable Full Market cost cost price 000 000 000 Revenue 200 000 X 75 15 000 15 000 15 000 Costs Fabric 200 000 X 1.1 X 11 2 420 X 24 5 280 X 30 6 600 Other costs 200 000 X 35 7 000 7 000 7 000 Budgeted profit 5 580 2 720 1 400 We can see that Cornwall will make a significant loss under the variable cost policy. Most of the division s output must be sold to Devon and whilst the surplus sold to the external market makes a contribution it is not enough to cover the fixed cost. Cornwall manages to make a small profit under the full cost policy which is entirely due to the sales to the outside market. If there were no external sales the division would simply break even. When however transfer prices are set at market price Cornwall makes a significant profit. For Devon the situation is reversed. It makes a significant profit under the variable cost policy but when fabric prices are increased under the full cost policy and then further increased under the market price policy so the budgeted profit declines. Devon s profits of course are unaffected by Cornwall s sales to outside businesses. Differential transfer prices There is no reason why in respect of a particular inter-divisional transaction there cannot be two different transfer prices. It may be that setting the buying price for the buying division at one value and the selling price for the selling division at a different value could lead to both divisions being encouraged to act in the best interests of the business as a whole. This would mean that the overall profit for the business would not equal the sum of the profits of the individual divisions but this is not necessarily a problem. Real World 10.7 sets out transfer pricing guidelines for businesses operating in the water industry. TRANSFER PRICING 395 REAL WORLD 10.7 Thinking water To protect the interests of customers the UK