Question 1

**Section A**

GlobalChem has two divisions: Division A produces a chemical compound that can be sold externally or transferred to Division B. Division A is currently operating at full capacity and selling all its output to the external market for $50 per unit. The variable cost of production is $30 per unit.

Division B wants to buy the compound from Division A. If Division A transfers internally, it saves $2 per unit in packaging costs.

What is the minimum transfer price Division A should accept?

Accepted Answer

Use the general rule for transfer pricing: Minimum TP = Marginal Cost to the supplying division + Opportunity Cost of the transfer.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Forgetting to deduct the cost savings from the external price, resulting in $50.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 4

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