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Part A

Test

QuestionAnswer
Market Based Earns same level of profit on external sales Happy to transfer unless at full capacity making other units that have a greater contribution;
Marginal (Variable) Costing No incentive to sell to receiving division, as the marginal cost does not include profit.;
Full Cost No profit is made on transfers if activity is at normal levels (profit is only made if activity exceeds normal levels);Profit is only made if goods are sold externally.;No incentive to supply goods internally.;
Dual Pricing (Cost Plus Pricing) The plus acts as an incentive for the group to transfer internally.;Externally transferred products would be preferred if the plus is greater than on internally transferred products.;
Opportunity Cost (Standard Cost + Opportunity Cost) The supplying division will be indifferent, as internal 7 external sales will be at market price;
Market Based Earns same level of profit on external sales.{LF}Happy to transfer unless at full capacity making other units that have a greater contribution{LF}
Marginal (Variable) Costing No incentive to sell to receiving division, as the marginal cost does not include profit.{LF}
Full Cost No profit is made on transfers if activity is at normal levels (profit is only made if activity exceeds normal levels){LF}Profit is only made if goods are sold externally.{LF}No incentive to supply goods internally.{LF}
Dual Pricing (Cost Plus Pricing) The plus acts as an incentive for the group to transfer internally.{LF}Externally transferred products would be preferred if the plus is greater than on internally transferred products.{LF}
Opportunity Cost (Standard Cost + Opportunity Cost) The supplying division will be indifferent, as internal 7 external sales will be at market price{LF}
Created by: jsarratt