It is beneficial for related companies to negotiate a transfer price when the supplying company has unused capacity in its plant.

Question

Quizplus · Accepted Answer

When the supplying company has unused capacity in its plant, it can use the excess capacity to produce goods for a related company at a lower cost. This can benefit both companies if they negotiate a transfer price that reflects the cost savings for the supplying company and the cost benefits for the related company.

It Is Beneficial for Related Companies to Negotiate a Transfer