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

Quizplus · Accepted Answer

When considering setting the transfer price at the market price of a product similar to the intermediate good, it is important to consider whether the product on the market includes costly features that your downstream division does not use. If the market price includes costly features that your downstream division does not use, it may be appropriate to set a transfer price lower than the market price.

When Considering Setting the Transfer Price at the Market Price