When a transfer price increases
A)the profits of the division producing the intermediate product will rise
B)the profits of the division producing the intermediate product will fall
C)the costs of the division producing the intermediate product will rise
D)the costs of the division producing the intermediate product will fall

Question

When a transfer price increases
A)​the profits of the division producing the intermediate product will rise
B)the profits of the division producing the intermediate product will fall
C)the costs of the division producing the intermediate product will rise
D)​the costs of the division producing the intermediate product will fall

Quizplus · Accepted Answer

When a transfer price increases, the division producing the intermediate product will see an increase in its revenues for the products it transfers to other divisions, leading to a potential rise in its profits, assuming costs remain constant or do not increase proportionately.

When a Transfer Price Increases