Question 1

**Section A**

GlobalChem has two divisions. Division A produces a chemical compound and transfers it to Division B. Division A has spare capacity. The variable cost of production in Division A is $25 per liter. The external market price for the compound is $40 per liter. Division B can buy the compound externally for $38 per liter.

What is the minimum transfer price per liter that Division A should accept? (Enter your answer as a whole number).

Accepted Answer

Determine the marginal cost to the supplying division. Since there is spare capacity, there is no opportunity cost.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the external market price ($40) or the external purchase price for Division B ($38).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 2

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