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CIMA Advanced Management Accounting P2 Question # 27 Topic 3 Discussion

CIMA Advanced Management Accounting P2 Question # 27 Topic 3 Discussion

P2 Exam Topic 3 Question 27 Discussion:
Question #: 27
Topic #: 3

An organization is comprised of two divisions. One of the divisions manufactures a product that it sells both to an imperfect external market and to the other division.

The organization wishes to establish the most suitable basis for the transfer price for this product and is considering either a negotiated transfer price or a market-based transfer price.

Which of the following statements is correct?


A.

A negotiated transfer price could help to overcome the problem of establishing a single price for this external market.


B.

A single market price for all of the division's output can be determined easily whereas a negotiated transfer price may result in protracted negotiations.


C.

A negotiated transfer price will always result in goal congruence whereas this is not always true when using a single market-based transfer price.


D.

A market-based transfer price will ensure both divisional autonomy and goal congruence because part of the division's output is sold to the external market.


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