(Appendix 12A)Opportunity cost should be ignored in setting the transfer price.

Question

Quizplus · Accepted Answer

Opportunity cost should not be ignored in setting the transfer price. Opportunity cost represents the value of the forgone alternative use of resources, and it is important to consider it when setting transfer prices to ensure that the division selling the product is compensated fairly and the division buying the product is not charged more than what it would cost to obtain the product from an external supplier. Ignoring opportunity cost may lead to suboptimal decisions for both divisions and the company as a whole.

(Appendix 12A)Opportunity Cost Should Be Ignored in Setting the Transfer