If there is no external market for an intermediate product, then the transfer price should be set equal to
A) the marginal cost of producing the optimal quantity of the intermediate product.
B) the marginal cost of producing the final product.
C) the selling price of the final product.
D) None of the above is correct.

Question

Quizplus · Accepted Answer

The transfer price should be set equal to the marginal cost of producing the optimal quantity of the intermediate product when there is no external market for it. This approach ensures that the decision-making related to the production and transfer of the intermediate product is based on the most relevant cost information, aligning with economic efficiency principles.

If There Is No External Market for an Intermediate Product