When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred,then the lowest acceptable transfer price as far as the selling division is concerned is:
A)variable cost of producing a unit of product.
B)the full absorption cost of producing a unit of product.
C)the market price charged to outside customers,less costs saved by transferring internally.
D)the amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use.
E)all the costs of producing a unit of product.

Question

Quizplus · Accepted Answer

The lowest acceptable transfer price for the selling division is the market price charged to outside customers, less costs saved by transferring internally. This is because if the selling division can sell the product to outside customers at a higher price, they would prefer to do that rather than sell it internally at a lower price. Therefore, the transfer price must be at least equal to the market price, but adjusted for any costs saved by transferring internally.

When the Selling Division in an Internal Transfer Has Unsatisfied