CMA Intermediate · Management Accounting · Transfer Pricing
Division S sells a component to Division T at market price of ₹150 per unit; S's variable cost is ₹90 per unit. T uses one component per unit of its final product, incurs other variable cost of ₹70, and sells at ₹260. If 3,000 units are sold, what is the contribution of Division T?
Division T's contribution is ₹1,20,000. Per unit, selling price ₹260 less transfer price ₹150 and other variable cost ₹70 leaves ₹40, and multiplying by 3,000 units gives ₹1,20,000. The transfer price, not S's variable cost, is T's input cost.
- A₹1,20,000Correct
- B₹3,00,000
- C₹1,80,000
- D₹60,000
Explanation
T's contribution per unit = 260 - 150 - 70 = ₹40. For 3,000 units = ₹1,20,000. ₹3,00,000 would use S's variable cost instead of the transfer price; ₹1,80,000 is S's contribution (60 x 3,000).
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