The general formula for the minimum transfer price is: minimum transfer price equals
A) fixed cost + opportunity cost.
B) external purchase price.
C) total cost + opportunity cost.
D) variable cost + opportunity cost.

Question

Quizplus · Accepted Answer

The minimum transfer price should at least cover the variable cost incurred by the selling division, plus any opportunity cost of selling internally rather than externally. Fixed costs should not be considered in the minimum transfer price calculation as they are not affected by the decision to sell internally or externally. An external purchase price may be used as a reference point, but it should not be the sole determinant of the minimum transfer price. Therefore, choice D, which includes variable cost and opportunity cost, is the best option for the minimum transfer price formula.

The General Formula for the Minimum Transfer Price Is: Minimum