Which of the following denotes minimum transfer price?
A) Minimum transfer price = Incremental cost per unit incurred up to the point of transfer + Opportunity cost per unit to the selling subunit
B) Minimum transfer price = Total cost per unit incurred up to the point of transfer + Sunk cost per unit to the selling subunit
C) Minimum transfer price = Current cost per unit incurred up to the point of transfer + Historical cost per unit to the selling subunit
D) Minimum transfer price = Variable cost per unit incurred up to the point of transfer + Fixed cost per unit to the selling subunit

Question

Quizplus · Accepted Answer

The minimum transfer price is the minimum amount that the selling subunit should accept for the transfer of goods or services to another subunit within the same organization. This price should cover the incremental cost incurred up to the point of transfer, and the opportunity cost of selling to the outside market. Therefore, option A is the correct choice as it includes both the incremental cost and the opportunity cost. Option B is incorrect because sunk costs should not be considered for transfer pricing decisions. Option C is incorrect because historical costs are not relevant for pricing decisions as they do not reflect current market conditions. Option D is incorrect because fixed costs should not be considered for transfer pricing decisions as they do not vary with the level of production or sales.

Which of the Following Denotes Minimum Transfer Price