A company is comprised of two divisions, each of which manufactures a single product.

Vendor: CIMA
Product: P2
Update on: Jul 29, 2025
Questions: 202

CIMA P2 Question Answer

A company is comprised of two divisions, each of which manufactures a single product. Division A manufactures a product which can be sold in a perfect external market or transferred as an intermediate product to division B. Division B finishes the intermediate product and sells this in a perfect external market.

Due to company policy, internal transfers are recorded at the external market price. At this transfer price both divisions make a profit from their activities.

Which of the following will NOT be achieved by the company's transfer pricing policy?

Divisional autonomy

A fair basis for divisional performance evaluation

Motivation of divisional managers to produce and sell as much as possible

Goal congruence