Which of the following best describes a transfer price?
A) It is the price charged by an organization when it transfer goods to another organization in lieu of services provided by it.
B) It is the price that is to be used while calculating revenue from sales to customers for tax purposes.
C) It is the price that is charged by a department of an organization when it sells its goods to its competitors.
D) It is the price one subunit charges for a product or service supplied to another subunit of the same organization.

Question

Quizplus · Accepted Answer

A transfer price is the price that one subunit of an organization charges for a product or service supplied to another subunit of the same organization. This is to ensure that internal transactions are recorded accurately and fairly, and to prevent distortions in performance measurement and evaluation. Option A describes a payment for services rather than a transfer price, Option B describes a tax-related concept, and Option C is incorrect as organizations generally do not sell goods to their competitors.

Which of the Following Best Describes a Transfer Price