- 15 Marks
Evaluate transfer pricing objectives and calculate company contribution for Keta Fitness Ltd's divisions.
Question
KETA FITNESS LTD
(a) Objectives of Transfer pricing include the following:
(i) Goal congruence
(ii) Performance evaluation
(iii) Divisional authority
(iv) Tax minimisation
(v) Motivation
(b) The company’s contribution as a whole
| DIVISION A | DIVISION B | COMPANY | |
|---|---|---|---|
| Selling price | GH₵ 20,000 | GH₵ 30,000 | GH₵ 30,000 |
| Incremental Cost (A) | (12,000) | (20,000) | (12,000) |
| Incremental Cost (B) | – | (15,000) | (15,000) |
| Contribution | 8,000 | (5,000) | 3,000 |
(i) Should Division A transfer to Division B or sell as an intermediate product?
(ii) If there is excess capacity of 200 units, what would be the total contribution and the range of transfer prices for the excess capacity?
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