The approach that requires the transfer price to be less than the market price but greater than the supplying division's variable costs per unit is called the
A) cost price approach
B) negotiated cost approach
C) standard cost approach
D) market price approach

Question

Quizplus · Accepted Answer

The approach that requires the transfer price to be less than the market price but greater than the supplying division's variable costs per unit is called the negotiated cost approach. This approach aims to ensure that the supplying division is adequately compensated for its costs while also allowing the receiving division to generate a profit when reselling the product internally or externally. The other options (cost price approach, standard cost approach, market price approach) do not take into account the need for negotiation between divisions and achieving a balance between compensation and profitability.

The Approach That Requires the Transfer Price to Be Less