When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market
A)It is appropriate to ignore that the market price includes a margin above marginal cost
B)Consider whether the product on the market includes costly features your downstream division does not use
C)It is OK if the product on the market is inexpensive because its quality is lower than you use
D)If it is similar enough,it is justification for you producing it in-house

Question

​When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market
A)​It is appropriate to ignore that the market price includes a margin above marginal cost
B)Consider whether the product on the market includes costly features your downstream division does not use
C)It is OK if the product on the market is inexpensive because its quality is lower than you use
D)​If it is similar enough,it is justification for you producing it in-house

Quizplus · Accepted Answer

When setting the transfer price at the market price of a similar product, it is important to consider any differences in costly features that may make the market price higher than the actual cost of the intermediate good. This will ensure that the transfer price is fair and reflective of the actual cost of producing the intermediate good. Ignoring the margin above marginal cost (A) or the quality of the product (C) could result in an unfair transfer price. Additionally, the similarity of the product (D) does not necessarily justify producing it in-house.

​When Considering Setting the Transfer Price at the Market Price

When Considering Setting the Transfer Price at the Market Price