When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market
A)It is important to recognize that the market price includes a margin above marginal cost
B)It is OK if the product on the market includes costly features your downstream division does not use
C)It is OK if the product on the market is inexpensive because its quality is lower than you use
D)If it is similar enough,it is justification for you producing it in-house

Question

​When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market
A)​It is important to recognize that the market price includes a margin above marginal cost
B)It is OK if the product on the market includes costly features your downstream division does not use
C)It is OK if the product on the market is inexpensive because its quality is lower than you use
D)​If it is similar enough,it is justification for you producing it in-house

Quizplus · Accepted Answer

The market price includes a profit margin above the marginal cost, which should also be added to the transfer price to ensure that the selling division makes a profit.

Answer: B and C are not correct choices as they do not consider factors like different features, quality, and cost structure of the product on the market.

Answer: D is not applicable as producing the intermediate good in-house depends on various factors like the company's core competencies, economies of scale, and production efficiency, rather than just the similarity of the intermediate good on the market.

​When Considering Setting the Transfer Price at the Market Price

When Considering Setting the Transfer Price at the Market Price