Question 4
ICAN
•
2026
•
PERFORMANCE MANAGEMENT
•
mixed
Case Stimulus
Oforma Nigeria Limited has two operating divisions, Lagos division and Enugu division that are treated as profit centres for the purpose of performance reporting. Lagos division makes two products, Gat-R and Mat-R. Gat-R is sold to external customers for ₦620 per unit. Mat-R is a part-finished item that is sold only to Enugu division. Enugu division can obtain the part-finished item from either Lagos division or from an external supplier. The external supplier charges a price of ₦550 per unit. The production capacity of Lagos division is measured in total units of output of Gat-R and Mat-R. Each unit requires the same direct labour time. The costs of production in Lagos division are as follows: Gat- R ₦ Mat-R ₦ Variable cost 460 480 Fixed cost 190 190 Full cost 650 670.
Requirements
(
a
)
What is an optimal transfer price?
(
b
)
What would be the optimal transfer price for Mat-R if there is spare production capacity in Lagos division?
(
c
)
What would be the optimal transfer price for Mat-R if Lagos division is operating at full capacity due to a limited availability of direct labour, and there is unsatisfied external demand for Gat-R?
(
d
)
Discuss two methods that can be used to evaluate performance of divisions that operate as investment centres.
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About This Question
This is
Ican
2026
Performance Management
Question 4.
It is one of the
mixed
questions from the
2026
Ican
Performance Management
examination.