When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred, the lowest acceptable transfer price for the selling division is:
A) the variable cost of producing a unit of product.
B) the full absorption cost of producing a unit of product.
C) the market price charged to outside customers, less costs saved by transferring internally.
D) the amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use.

Question

Quizplus · Accepted Answer

The lowest acceptable transfer price for the selling division, when there is unsatisfied external demand, is the market price charged to outside customers minus any costs saved by transferring internally. This ensures the selling division does not lose out on potential profits from external sales.

When the Selling Division in an Internal Transfer Has Unsatisfied