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CMA Final · Strategic Cost Management · Transfer Pricing (Cost Management)

Division S produces an intermediate product at variable cost Rs 50 and fixed cost Rs 20 per unit at normal volume. The company uses dual pricing: the seller is credited at full cost plus 20% markup and the buyer is charged at variable cost. For 2,000 units transferred, what is the seller division's credited transfer revenue?

The seller is credited Rs 1,68,000. Full cost is Rs 70 per unit (Rs 50 variable plus Rs 20 fixed); adding 20% gives Rs 84, and for 2,000 units this yields Rs 1,68,000. The buyer's variable-cost charge does not affect the seller's credit under dual pricing.

  1. ARs 1,20,000
  2. BRs 1,68,000Correct
  3. CRs 1,40,000
  4. DRs 84,000

Explanation

Full cost = 50 + 20 = Rs 70. Add 20% markup: 70 x 1.2 = Rs 84 per unit. For 2,000 units: 84 x 2,000 = Rs 1,68,000. Rs 1,20,000 uses variable cost plus 20% (60 x 2,000), ignoring fixed cost.

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