Transfer prices can be based on:

Question

Quizplus · Accepted Answer

Transfer prices can be based on any of the above methods, depending on the goals of the organization and the specific context. Variable cost-based transfer prices may be appropriate when the selling division has excess capacity and wants to cover its variable costs, while full cost-based transfer prices may be more appropriate when the selling division has limited capacity and needs to recover both variable and fixed costs. External market prices can be used when there is an active and competitive market for the product or service being sold within the organization, while negotiated settlement may be useful when the buying and selling divisions are interdependent and need to maintain long-term relationships. Therefore, all of these methods can be valid options for determining transfer prices.

Transfer Prices Can Be Based On