ACCA PM December 2026: Transfer Pricing Never Changes Group Profit (Examiners Keep Marking It Wrong)

A transfer price change moves profit between divisions. It never changes group profit. Say that in the first line of your answer and you've already beaten the candidates the PM examiner keeps marking down.

What the examiner actually found

In the March/June 2025 PM examiner's report, the Caroline Co question on divisional profit statements and transfer pricing exposed two repeat problems. Candidates struggled to separate internal and external sales in the divisional statements. Worse, many misunderstood the core point: a different transfer price shifts profit from one division to the other, but total company profit stays put.

The discussion marks suffered too. Advantages and disadvantages of transfer pricing methods were generic, with little on divisional motivation or goal congruence. The examiner also flagged analysis that wasn't tied to scenario data, and answers where requirements went unaddressed.

That pattern shows up across Section C every sitting. Calculations are rarely the problem. Applying the answer to the scenario is where marks leak.

Wrong answer vs correct answer

Division A makes a component at a variable cost of $20. It sells externally at $35. Division B wants 1,000 units. Management proposes raising the internal transfer price from $30 to $34.

Wrong: "Raising the price to $34 increases profit by $4,000, so it's the better option for the company."

Correct: "A's profit rises by $4,000 and B's falls by $4,000. Group profit is unchanged. The decision that matters is whether B should take the units internally at all, and that depends on A's spare capacity."

Now the minimum transfer price, which is the figure the examiner wants you to build from first principles:

Minimum transfer price = marginal cost + opportunity cost.

If A has spare capacity, the opportunity cost is nil, so the minimum price is $20. If A is at full capacity, every unit sent to B is a unit not sold externally, so the minimum is the $35 external price (less any selling costs saved on internal sales). The maximum B should pay is the lower of its net marginal revenue or the external buying price.

What to do on exam day

1. Open with the group-profit point. One sentence: "Transfer prices redistribute profit between divisions; group profit is unchanged unless the decision changes output or external sales." It anchors every mark that follows.

2. Calculate the minimum price using the capacity status in the scenario. Check the wording for spare capacity, limited capacity or an external market. State which case you're in before you calculate. That is the application mark.

3. Tie every discussion point to the scenario. Don't write "market-based pricing promotes autonomy". Write "if A is judged on divisional profit, a cost-based price gives A no incentive to supply B, so B's managers may buy externally and group profit falls". Name the division, name the behaviour, name the consequence.

Where this sits

Transfer pricing belongs to the performance measurement part of the PM syllabus, and it comes up in the longer Section C questions where the examiner reports weak application and missed requirements sitting after sitting. The pass-or-fail gap is rarely the arithmetic.

State the capacity position, show your working, and apply the answer to the scenario. Practise the group-profit sentence until it's automatic.

Transfer prices move the money. They don't make it.