In a potential transfer price situation,if the supplying division is operating at capacity in making sales to outside customers,it should be required to accept a transfer price that would lower its overall profitability,because doing so will increase total firm profitability.

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The supplying division operating at capacity should not be required to accept a transfer price that would lower its overall profitability. This is because the supplying division would be losing out on potential profits from outside customers and may not be able to make up for it with the transfer price. It is not always the case that lowering the profitability of one division will lead to overall firm profitability, as it depends on the situation and strategy of the firm.

In a Potential Transfer Price Situation,if the Supplying Division Is