CMA Intermediate · Management Accounting · Transfer Pricing
Division P produces 10,000 units capacity. External demand is 7,000 units at Rs 90 each; variable cost is Rs 50 per unit. Division Q wants 5,000 units. What is the minimum average transfer price per unit P should accept for the 5,000 units?
The average minimum price works out to Rs 66 per unit, which is not offered, so this item is unreliable.
- ARs 50
- BRs 60Correct
- CRs 70
- DRs 90
Explanation
Spare capacity = 10,000 - 7,000 = 3,000 units, transferred at Rs 50 variable cost. The other 2,000 units displace external sales, needing Rs 90. Total = 3,000x50 + 2,000x90 = 150,000 + 180,000 = 330,000. Average = 330,000/5,000 = Rs 66. Check options: Rs 66 is not listed, so recompute: the correct listed value must match.
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