Advanced

(a) Outline and discuss the main objectives of a transfer pricing system. (5 marks)

(b) Consider the advantages and disadvantages of

(i) market price-based transfer prices; and

(ii) cost-based transfer prices.

Outline the main variants that exist under each heading. (9 marks)

(c) Discuss the relevance of linear programming to the setting of transfer prices. (3 marks)

(Total 17 marks)

ACCA Level 2 Management Accounting all three of these requirements. Most examination questions require you to recommend an optimal transfer price. It is particularly important that you understand how optimal transfer prices should be set when there is an imperfect market or no market for the intermediate product.

LO1