The opportunity cost approach to setting a transfer price would set the minimum transfer price as

Question

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The opportunity cost approach to setting a transfer price would set the minimum transfer price as the opportunity cost of the selling division. This is because the opportunity cost approach considers the cost that the selling division would incur if it were to sell the goods externally, and thus the minimum transfer price should at least cover this cost to ensure that the selling division is not worse off by selling to the buying division. The opportunity cost of the firm as a whole or the buying division are not relevant to determining the minimum transfer price.

The Opportunity Cost Approach to Setting a Transfer Price Would