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Transfer Pricing part 1 - ACCA Performance Management (PM)

VIVA Subject Guide

9 Comments

  1. Kim
    Hi John - thanks for another well-organised and easy to understand lecture.

    I was just curious as to the pattern of profit between divisions, are there situations where the profits are higher in production divisions or is it more or less always the case that the profits for the selling divisions to be higher than production divisions, or is it just this example? :)
  2. John MoffatTutor
    Thank you for your comment.

    It was just an example. How the profit is split between the divisions depends on the transfer price that is agreed.
  3. Ibrahim
    I mean sir, $15 consists of variable and fixed costs
  4. John MoffatTutor
    It depends whether they have a policy of marginal cost plus or absorption cost plus (just as with 'normal' pricing as in my Pricing lectures earlier).
  5. Ibrahim
    Dear John,
    I hope you are doing well,
    In regards to cost-plus transfer pricing, Does this cost contain from variable and fixed costs or just variable?

    Thanks and Regards.
  6. Ibrahim
    I mean sir, $15 consists of variable and fixed costs
  7. Ibrahim
    Dear John Sir,

    How are you?
    I hope you are doing good?
    Thank you for your time and informative lecture.
    Thank you so much Sir,
  8. LEO
    Sir in example 3
    If company B cuts down it’s own cost
    They would too make a profit right?
    It would also lead to goal congruence
    So transfer pricing isn’t the only solution isn’t it?
    Even if company B cuts down it’s own cost
    It could too make profit for the division and also for the company too
  9. John MoffatTutor
    True, but given that most of their costs are the cost of the transfers from A, there are not many costs they can cut are there? :-)

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