In the minimum transfer price formula, variable cost is defined as the variable cost of
A) all units sold, both internally and externally.
B) units sold externally.
C) units not sold.
D) units sold internally.

Question

Quizplus · Accepted Answer

The minimum transfer price formula is used to determine the minimum price at which a division should sell its product to another division within the same company. The variable cost used in this formula only applies to units sold internally, as these are the only units that are relevant to the transfer price. This is because the variable cost of units sold externally is already being covered by the revenue received from those sales. Therefore, the variable cost used in the minimum transfer price formula only applies to units sold internally.

In the Minimum Transfer Price Formula, Variable Cost Is Defined