CMA Intermediate · Management Accounting · Transfer Pricing
Division M's variable cost is Rs 35 per unit and its fixed cost is Rs 15 per unit. The company uses full cost plus 20% mark-up for internal transfers. What is the transfer price per unit?
The transfer price is Rs 60 per unit. Full cost is Rs 35 variable plus Rs 15 fixed, equal to Rs 50, and a 20 percent mark-up adds Rs 10. Applying the mark-up only to variable cost would wrongly give Rs 42.
- ARs 42
- BRs 50
- CRs 60Correct
- DRs 56
Explanation
Full cost = 35 + 15 = Rs 50. Mark-up 20% of 50 = Rs 10. Transfer price = Rs 60. Rs 42 applies the mark-up to variable cost only (35x1.2).
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