Division A produces a component and wants to sell it to Division B.Which of the following best describes the relationship of the transfer price to Division A and Division B?
A)revenue to Division A and a cost to Division B
B)revenue to Division B and a cost to Division A
C)revenue to Division A and no effect on Division B
D)a cost to Division B and no effect on Division A

Question

Quizplus · Accepted Answer

The transfer price is considered revenue for the selling division (Division A) because it represents the income received from selling the component. For the buying division (Division B), the transfer price is a cost because it represents the expense incurred to acquire the component.

Division a Produces a Component and Wants to Sell It