ACCA PM · Chapter 14 · Question 8 of 10
Division S makes a component with a variable cost of $30 per unit. It is working at full capacity and sells all its output externally at $50 per unit, incurring selling costs of $2 per unit that would be avoided on internal transfers. What is the minimum transfer price that Division S should accept for transfers to Division R?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $48
Explanation
Minimum transfer price = marginal cost + opportunity cost. The opportunity cost is the contribution lost on an external sale: $50 - $2 - $30 = $18. Minimum price = $30 + $18 = $48. Equivalently, the external price less the selling costs saved: $50 - $2 = $48.
More Divisional performance and transfer pricing MCQs
- Q10Division S transfers a component to Division R at full cost plus 20%. Which problem is most likely to arise?
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