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Chapter 9

The problem is that transferring at marginal cost is unlikely to be fair
to the supplying division. Possible solutions include:

 A two-part tariff, where the transfer is accounted for in two parts:

– Part 1 TP = standard variable cost (marginal cost)

– Part 2 = a periodic fixed charge, i.e. in addition a fixed sum is paid per
period to the supplying division to go at least part of the way towards
covering its fixed costs, and possibly even to generate a profit.

Illustrations and further practice

Now read the ‘Archer Group’ illustration from Chapter 9.

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