When companies become decentralized and have additional departments, these departments will often begin to sell their products internally to one another. A crucial step in the process of creating a meaningful and worthwhile business relationship is to establish appropriate transfer prices. Which of the following represents the possible negotiated transfer price?
A) Fixed Manufacturing Costs plus Mark-Up
B) Only Fixed Manufacturing Costs
C) The minimum price as established by the buyer
D) Variable Manufacturing Costs

Question

Quizplus · Accepted Answer

This question requires familiarity with the continuum of negotiated transfer prices. While all of the choices listed above seem like definite possibilities, it is only Choice D that is likely to be a possible negotiated transfer price as it appears on the continuum. The other choices contain elements of what could be included, but they are missing one or more crucial elements to make it complete.

When Companies Become Decentralized and Have Additional Departments, These Departments