The transfer price should be an amount between the market price and the variable cost.

Question

Quizplus · Accepted Answer

The transfer price should be set at a level that is fair to both the selling and receiving divisions. The market price is the price that the receiving division would have to pay if it purchased the goods or services from an outside supplier. The variable cost is the cost that the selling division incurs to produce the goods or services. The transfer price should be set somewhere between these two prices, so that both divisions can benefit from the transaction.

The Transfer Price Should Be an Amount Between the Market