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

Under dual pricing as a transfer pricing method, which treatment is followed?

In dual pricing, the selling division is credited at market price while the buying division is charged at cost or a lower price. The resulting difference is reconciled through a head office adjustment on consolidation, which keeps both divisions motivated.

  1. AThe selling division is credited at market price while the buying division is charged at cost, with the difference adjusted at head officeCorrect
  2. BBoth divisions use the same negotiated price
  3. CBoth divisions use the variable cost only
  4. DThe buying division is credited at market price and the selling division is charged at cost

Explanation

In dual pricing the selling division records the transfer at a higher price, usually market price, and the buying division records it at a lower price, usually cost. The difference is eliminated by a head office adjustment on consolidation. Using the same price for both is single pricing, not dual.

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