Skip to content

ACCA Strategic Professional · Advanced Financial Management · Dividend policy in multinationals and transfer pricing

Division S has variable cost $30 per unit and sells externally at $50 with no capacity constraint on external sales, but internal transfers displace external sales one for one. Division B wants units for a product that earns B a net revenue of $48 per unit before the transfer price. Using the general minimum transfer price rule, what is the minimum transfer price S should accept?

The minimum transfer price is $50, being the $30 variable cost plus the $20 contribution lost on each displaced external sale. This equals the external market price, so the division would not accept less.

  1. A$50Correct
  2. B$30
  3. C$20
  4. D$48

Explanation

Minimum transfer price equals marginal cost plus opportunity cost. Variable cost $30 plus lost contribution on the displaced external sale $50 - $30 = $20 gives $50. Since B's net revenue is $48, transfer is not worthwhile for the group. $30 ignores opportunity cost.

Did you get it right without looking?

One question tells you little. A timed set on Dividend policy in multinationals and transfer pricing shows your real accuracy, how long you take and where you lose marks.

Practise Dividend policy in multinationals and transfer pricingFree diagnostic mock

More Dividend policy in multinationals and transfer pricing questions