What is the price the selling division charges for a component purchased by the buying division of the same company?
A) market price
B) transfer price
C) cost-based price
D) economic value added price

Question

Quizplus · Accepted Answer

The price charged by the selling division for a component purchased by the buying division of the same company is known as a transfer price. It is often negotiated between the two divisions and can be based on various factors such as market prices, cost-based prices, or economic value added prices. However, since it is an internal transaction, the transfer price is not influenced by market forces, making it different from market price. Cost-based prices may be used as a baseline for negotiation, but they may not reflect the true opportunity cost of the selling division. Economic value added prices aim to optimize the overall value of the company and may involve more complex calculations. Therefore, the most appropriate answer is B, transfer price.

What Is the Price the Selling Division Charges for a Component