Advanced

(a) Transfers between processes in a manufactur¬ ing company can be made at (i) cost or (ii) sales value at the point of transfer.

Discuss how each of the above methods might be compatible with the operation of a responsibility accounting system. (8 marks)

(b) Shadow prices (net opportunity costs or dual prices) may be used in the setting of transfer prices between divisions in a group of com¬ panies, where the intermediate products being transferred are in short supply.

Explain why the transfer prices thus calcu¬ lated are more likely to be favoured by the management of the divisions supplying the intermediate products rather than the manage¬ ment of the divisions receiving the intermedi¬ ate products. (9 marks)

(Total 17 marks) ACCA Level 2 Management Accounting LO1