A common approach is to set the transfer price equal to the price in the external market and when there is no excess production capacity and perfect competition prevails, the general transfer pricing rule and the external price yield the same transfer price.

Question

Quizplus · Accepted Answer

When there is no excess production capacity and perfect competition prevails, setting the transfer price equal to the external market price aligns with the general transfer pricing rule, as it ensures that the internal transactions are valued at a price that reflects the opportunity cost and market conditions, leading to efficient resource allocation within the company.

A Common Approach Is to Set the Transfer Price Equal