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

Question

Quizplus · Accepted Answer

When an outside market exists for an intermediate product and it is perfectly competitive, it's best to use market price as the most equitable method of transfer pricing. This is because market prices are determined by supply and demand forces and represent the true value of the product in the marketplace. Using any other method, such as cost-based pricing, may result in unfairly transferring profits between departments or subsidiaries.

When There Is an Outside Market for an Intermediate Product