Baltic Group $18

Sale price Quantity sold Total revenue VC total Fixed cost Profit Dcontribution
100 1,000 $100,000 $18,000 150,000 ($68,000)
90 2,000 180,000 $36,000 150,000 ($6,000)
80 3,000 240,000 $54,000 150,000 $36,000
70 4,000 280,000 $72,000 150,000 $58,000
60 5,000 300,000 $90,000 150,000 $60,000
50 6,000 300,000 $108,000 150,000 $42,000

COST PLUS A MARK-UP TRANSFER FEE

Oslo Division trf price = $35 VC = $11
Quantity sold trf price rev. VC: Oslo Fixed cost Profit
1,000 $35,000 $11,000 60,000 ($36,000)
2,000 $70,000 $22,000 60,000 ($12,000)
3,000 $105,000 $33,000 60,000 $12,000
4,000 $140,000 $44,000 60,000 $36,000
5,000 $175,000 $55,000 60,000 $60,000
6,000 $210,000 $66,000 60,000 $84,000

Bergen Div. trf price = $35 VC = $7

Output level Total rev. trf price cost VC: Oslo Fixed cost Profit
1,000 $100,000 $35,000 $7,000 90,000 ($32,000)
2,000 180,000 70,000 14,000 90,000 6,000
3,000 240,000 105,000 21,000 90,000 24,000
4,000 280,000 140,000 28,000 90,000 22,000
5,000 300,000 175,000 35,000 90,000 -
6,000 300,000 210,000 42,000 90,000 (42,000)

MARGINAL / VARIABLE COSTG TRANSFER PRICES

Oslo Division trf price = $11 VC = $11
Output level trf price rev. VC: Oslo Fixed cost Profit
1,000 $11,000 $11,000 $60,000 ($60,000)
2,000 22,000 22,000 60,000 (60,000)
3,000 33,000 33,000 60,000 (60,000)
4,000 44,000 44,000 60,000 (60,000)
5,000 55,000 55,000 60,000 (60,000)
6,000 66,000 66,000 60,000 (60,000)

Bergen Div. trf price = $11 VC = $7

Output level Total rev. trf price cost VC total Fixed cost Profit Oslo profit
1,000 $100,000 11000 7000 90,000 ($8,000) ($60,000)
2,000 180,000 22,000 14,000 90,000 54,000 (60,000)
3,000 240,000 33,000 21,000 90,000 96,000 (60,000)
4,000 280,000 44,000 28,000 90,000 118,000 (60,000)
5,000 300,000 55,000 35,000 90,000 120,000 (60,000)
 6,000 300,000 66,000 42,000 90,000 102,000 (60,000)

FULL COST TRANSFER PRICES WITHOUT A MARK-UP

Oslo Division trf price = $23 VC = $11
Output level trf price rev. VC: Oslo Fixed cost Profit
1,000 $23,000 $11,000 $60,000 ($48,000)
2,000 46,000 22,000 60,000 (36,000)
3,000 69,000 33,000 60,000 (24,000)
4,000 92,000 44,000 60,000 (12,000)
5,000 115,000 55,000 60,000 -
6,000 138,000 66,000 60,000 12,000

Bergen Div. trf price = $23 VC = $7

Output level Total rev. trf price cost VC total Fixed cost Profit Oslo profit
1,000 $100,000 $23,000 7000 90,000 ($20,000) ($48,000)
2,000 180,000 46,000 14,000 90,000 30,000 (36,000)
3,000 240,000 69,000 21,000 90,000 60,000 (24,000)
4,000 280,000 92,000 28,000 90,000 70,000 (12,000)
5,000 300,000 115,000 35,000 90,000 60,000 -
6,000 300,000 138,000 42,000 90,000 30,000 12,000

MARGINAL/VARIABLE COST PLUS OPPORTUNITY COST TRANSFER PRICES

Market price = $20
Variable cost = $5
Opportunity cost Transfer price will be
Perfectly competitive external market present
Temporary spare capacity Nil $5
No spare capacity contribution = $15 $20
No market for intermediate product
Temporary spare capacity Nil $5
No spare capacity Nil $5
Units SP Net marginal rev.
1,000 100 $93,000
2,000 90 $73,000
3,000 80 $53,000
4,000 70 $33,000
5,000 60 $13,000
6,000 50 ($7,000)

Baltic group
($68,000)
(6,000)
36,000
58,000
60,000
 42,000

Baltic group
($68,000)
(6,000)
36,000
58,000
60,000
42,000

nsfer price will be