Exam 20: Transfer Pricing in Divisionalized Companies

Figure 20-7 The Engine Division provides engines for the Tractor Division of a company. The standard unit costs for Engine Division are as follows: Direct materials £600 Direct labour 1,200 Variable overhead 300 Fixed overhead 150 Market price per unit 2,730 -Refer to Figure 20-7. What is the best transfer price to avoid transfer price problems?

A transfer pricing system should satisfy which of the following objectives?

The opportunity cost approach to setting a transfer price would set the minimum transfer price as