Which of the following transfer price approaches is most appropriate for a short-term problem in which the selling division has excess capacity?
A)Variable cost-based transfer prices.
B)Full cost-based transfer prices.
C)Market-based transfer prices.
D)Negotiated transfer prices.
E)None of the above.

Question

Quizplus · Accepted Answer

Variable cost-based transfer prices are most appropriate for a short-term problem when the selling division has excess capacity because they cover the incremental costs of producing the product, ensuring the selling division does not incur a loss on the transferred goods. This approach encourages internal trade without sacrificing the selling division's profitability, making it a suitable option for short-term issues related to excess capacity.

Which of the Following Transfer Price Approaches Is Most Appropriate