Which of the following is true about transfer pricing?
A) The maximum price that the buying division is willing to pay is the higher of the eventual contribution generated from an internal transaction and the price of purchasing from an external party
B) The selling division must always set a transfer price above the market price of the product to make the transaction economically feasible for the buying division.
C) There is generally a minimum transfer price the selling division will not go below based on its own cost structure.
D) The transfer-price range lies between the its fixed cost per unit and the higher of its contribution or price at which the product is available from external suppliers

Question

Quizplus · Accepted Answer

There is generally a minimum transfer price the selling division will not go below based on its own cost structure. The other options are not entirely accurate. Option A is partially correct, but the maximum price that the buying division is willing to pay can also be influenced by external market prices. Option B is incorrect as the selling division may set a transfer price below the market price to maintain or increase market share. Option D is incorrect as the transfer price can also be above the fixed cost per unit, depending on the company's pricing strategy.

Which of the Following Is True About Transfer Pricing