The overall objective in the determination of a transfer price is to
A) maximize the return of the selling division.
B) minimize the cost to the purchasing division.
C) minimize the return of the selling division.
D) maximize the return to the whole company.

Question

Quizplus · Accepted Answer

The overall objective in the determination of a transfer price is to maximize the return to the whole company, i.e., to ensure that the transfer price is set at a level that benefits both the selling division and the purchasing division in such a way that the overall profitability of the company is maximized. This ensures a win-win situation for both divisions, promotes coordination and cooperation within the organization, and helps in achieving organizational goals.

The Overall Objective in the Determination of a Transfer Price