When there is an outside market for an intermediate product which 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

The most equitable method of transfer pricing when there is an outside market for an intermediate product which is perfectly competitive is to use the market price. This ensures that the transfer price reflects the true value of the intermediate product in the market, and avoids any distortions that could arise from using internal production costs or other pricing methods. Using the market price also encourages both the buying and selling divisions to operate more efficiently, as they will be directly affected by changes in the market price. Therefore, the best choice for this scenario is option A.

When There Is an Outside Market for an Intermediate Product