Which of the following transfer prices will likely be closest to the opportunity cost of the product?

Question

Quizplus · Accepted Answer

The market price less costs avoided on an internal transfer will likely be closest to the opportunity cost of the product as it reflects the price at which the product could be sold to an external customer and the costs that the company is saving by not having to purchase the product from an external source. This transfer price ensures that the selling division earns a fair profit margin while also incentivizing the buying division to only purchase internally if it is more cost-effective than external purchases.

Which of the Following Transfer Prices Will Likely Be Closest