CMA Intermediate · Management Accounting · Transfer Pricing
A Pune firm's Division S sells a component externally at Rs 120 per unit, with variable cost Rs 75. For internal sales, Division T may buy at market price less 10% for avoided marketing costs. What internal transfer price per unit results under this market-based approach?
The internal transfer price is Rs 108 per unit. Under a market-based approach with a 10% discount for avoided marketing costs, the price is the external price of Rs 120 multiplied by 90 percent.
- ARs 108Correct
- BRs 120
- CRs 67.50
- DRs 84
Explanation
Market price less 10% discount: 120 x 0.90 = Rs 108. Rs 120 ignores the discount, while Rs 67.50 wrongly applies 10% to variable cost 75 to get 67.5 as the price.
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