When there is an outside market for an intermediate product that is perfectly competitive, the most equitable method of transfer pricing is
A)market price.
B)production cost pricing.
C)variable cost pricing.
D)cost plus markup pricing.

Question

Quizplus · Accepted Answer

When there is a perfectly competitive outside market for an intermediate product, the price will be determined by market forces and not influenced by the internal transfer pricing policies between divisions. Therefore, transferring the intermediate product at the market price would be the most equitable method for all parties involved.

When There Is an Outside Market for an Intermediate Product