Question 1

Section B - Case 3: Quantum Nexus

Quantum Nexus is a cross-border tech hardware company. 
Division A (located in Country X) manufactures microchips. Division B (located in Country Y) assembles these chips into smartphones.

Division A Data:
Variable cost per chip = $120
Fixed cost per chip = $30
External market selling price = $200

Division B Data:
External purchase price for similar chips = $190
Variable processing cost to assemble phone = $50
Final selling price of smartphone = $300

Division A currently has SPARE CAPACITY and can meet Division B's demand without losing external sales.

What is the minimum transfer price Division A should accept?

Accepted Answer

Apply the general rule for minimum transfer price: Marginal Cost + Opportunity Cost. If there is spare capacity, Opportunity Cost is zero.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Adding fixed costs to the minimum transfer price (full cost pricing), which leads to sub-optimal decision making.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 5

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