A company has two divisions: one making components and the other electrical goods. The component division sells a heating ring to the electrical goods division to make kettles but this division can buy a similar component from an outside supplier for £12. The costs of a heating ring made by the component division include a variable cost of is £8 and an allocation of overhead costs of £5.
If the component division is operating at full capacity and can sell the heating ring to an external customer, what should the transfer price be?
A) Above the market price of the electrical division's supplier
B) Above the market price of the component division's customer and below the market price of the electrical division's supplier
C) Below the market price of the electrical division's supplier
D) Below the market price of the component division's customer

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The Answer of A company has two divisions: one making components and the other electrical goods. The component division sells a heating ring to the electrical goods division to make kettles but this division can buy a similar component from an outside supplier for £12. The costs of a heating ring made by the component division include a variable cost of is £8 and an allocation of overhead costs of £5.
If the component division is operating at full capacity and can sell the heating ring to an external customer, what should the transfer price be?
A) Above the market price of the electrical division's supplier
B) Above the market price of the component division's customer and below the market price of the electrical division's supplier
C) Below the market price of the electrical division's supplier
D) Below the market price of the component division's customer

A Company Has Two Divisions: One Making Components and the Other