If the selling division has excess capacity, the transfer price should be set at its:
A) outlay costs.
B) outlay costs plus the foregone contribution to the organization of making the transfer internally.
C) selling price less the variable costs.
D) selling price less the variable costs plus the foregone contribution to the organization of making the transfer internally.

Question

Quizplus · Accepted Answer

When there is excess capacity, the transfer price should be set at the outlay costs, which are the variable costs of producing the product, as there is no opportunity cost or foregone contribution to consider.

If the Selling Division Has Excess Capacity, the Transfer Price