IM20.1 Advanced. Exel Division is part of the Supeer Group. It produces a basic fabric that is then converted in other divisions The fabric is also produced in other divisions within the within the group. Supeer Group and a limited quantity can be purchased from outside the group. The fabric is currently charged out by Exel Division at total actual cost plus 20 per cent profit mark-up. Required: (a) Explain why the current transfer pricing method used by Exel Division is unlikely to lead to: (i) maximization of group profit; and (ii) effective divisional performance measurement. (6 marks) (b) If the supply of basic fabric is insufficient to meet the needs of the divisions that convert it for sale outside the group, explain a procedure that should lead to a transfer pricing and deployment policy for the basic fabric for group profit maximization. (6 marks) (c) Show how the procedure explained in (b) may be in conflict with other objectives of transfer pricing and suggest how this conflict may be overcome. ( 5 marks) ACCA Level 2 - Cost and Management Accounting II IM20.1 Advanced. Exel Division is part of the Supeer Group. It produces a basic fabric that is then converted in other divisions The fabric is also produced in other divisions within the within the group. Supeer Group and a limited quantity can be purchased from outside the group. The fabric is currently charged out by Exel Division at total actual cost plus 20 per cent profit mark-up. Required: (a) Explain why the current transfer pricing method used by Exel Division is unlikely to lead to: (i) maximization of group profit; and (ii) effective divisional performance measurement. (6 marks) (b) If the supply of basic fabric is insufficient to meet the needs of the divisions that convert it for sale outside the group, explain a procedure that should lead to a transfer pricing and deployment policy for the basic fabric for group profit maximization. (6 marks) (c) Show how the procedure explained in (b) may be in conflict with other objectives of transfer pricing and suggest how this conflict may be overcome. ( 5 marks) ACCA Level 2 - Cost and Management Accounting