Question 1

**Section B - Case 3: Nordic Components**

Nordic Components is a multinational manufacturer. Division A (located in Country X) manufactures electric motors. Division B (located in Country Y) manufactures e-bikes and uses one motor per bike.

Division A's variable cost per motor is $50. It currently sells motors to external customers for $80. Division B currently buys identical motors from an external supplier for $75.

If Division A has ample spare capacity to meet Division B's needs without losing any external sales, what is the minimum transfer price Division A should accept? (Enter your answer as a whole number, without the $ sign)

Accepted Answer

Minimum Transfer Price = Marginal Cost + Opportunity Cost. With spare capacity, opportunity cost is zero.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Stating $80 (the external selling price) even though there is spare capacity.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA PM — Performance Management Practice Exam 6

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