Assuming the selling division has available capacity, a negotiated transfer price should be within the range of
A) fixed cost per unit and the external purchase price.
B) total cost per unit and the external purchase price.
C) variable cost per unit and the external purchase price.
D) variable cost per unit and the opportunity cost.

Question

Quizplus · Accepted Answer

A negotiated transfer price should at least cover the variable cost per unit that the selling division incurs to produce the product or service being transferred. The external purchase price represents the market value of the product or service, and can serve as an upper limit for the transfer price. The fixed cost per unit and total cost per unit are not relevant, as they are not affected by the transfer decision. The opportunity cost may be considered in some transfer pricing decisions, but it is not mentioned as a factor in this question.

Assuming the Selling Division Has Available Capacity, a Negotiated Transfer