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)It is OK if 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 calls into question whether there are gains from producing it in-house

Question

Quizplus · Accepted Answer

Setting the transfer price at market price of a similar product already available on the market can be a good approach if the product is similar enough in terms of quality and features. However, it may also call into question whether there are any gains from producing the product in-house, especially if the market price is close to the cost of production. Therefore, it is important to consider the specifics of the situation and the extent to which the existing product on the market matches the internal production process and requirements.

When Considering Setting the Transfer Price at the Market Price