ICAEW BIP · Chapter 5 · Question 7 of 9
A group sets transfer prices at full cost plus 20%. The full cost of a component is £34 per unit. What is the transfer price?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) £40.80
Explanation
Transfer price = £34 x 1.20 = £40.80. A drawback of full cost-plus transfer prices is that the buying division sees the supplier's fixed costs and mark-up as a variable cost, which can lead to sub-optimal decisions.
More Transfer pricing MCQs
- Q9Under a dual pricing system for transfers between divisions, what happens?
- Q1Which of the following is a main objective of a transfer pricing system in a divisionalised company?
- Q2Division A makes a component with a variable cost of £26 per unit and a fixed cost of £8 per unit. It sells the component externally for…
- Q3Division A makes a component with a variable cost of £26 per unit and sells all its output externally for £50 per unit. It is working at…
- Q4Division B buys a component from Division A, which has spare capacity. Division B can buy an identical component from an outside supplier…