ICAEW BIP · Chapter 5 · Question 9 of 9
Under a dual pricing system for transfers between divisions, what happens?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) The selling division is credited with one price and the buying division is charged a different, usually lower, price, with the difference held in a group account
Explanation
Dual pricing records the transfer at different prices in each division, for example market price for the seller and marginal cost for the buyer, so that each makes decisions that suit the group. The difference is eliminated in a central adjustment account on consolidation. The fixed fee plus marginal cost arrangement is a two-part tariff, which is a different approach.
More Transfer pricing MCQs
- 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…
- Q5If the buying and selling divisions are in the same tax jurisdiction, how does an increase in the transfer price for a component traded…
- Q6Which of the following is a practical limitation of using market price as a transfer price?