Question 1

Section A

GlobalTech Multinationals has two divisions: Division A produces microchips and Division B uses them to make laptops. Division A is operating at full capacity and can sell all its microchips externally for $50 each. The variable cost to produce a microchip is $30. What is the minimum transfer price Division A should accept to supply Division B?

Accepted Answer

When a supplying division is at full capacity, the minimum transfer price is the external market price, because they must be compensated for the lost external sale (opportunity cost).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Selecting the variable cost ($30), forgetting that opportunity cost must be included when at full capacity.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 3

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