Once companies have decentralized, they find themselves in a position where they will be able to attempt to establish transfer pricing between internal departments. In order to best accomplish this, the objectives for the buyer and seller must be considered, even if they are not fully disclosed to the other party. Which of the following represents a potential transfer price objective from the perspective of the seller?
A) A seller has no maximum selling price and has the desire to maximize profits.
B) A seller should keep in mind that they will definitely have an alternative market for its products other than an internal buyer.
C) The seller has a strong preference for selling to the internal buyer as opposed to an external, and potentially unfamiliar, vendor.
D) The seller wants to have a selling price that covers variable and fixed manufacturing costs, at a minimum.

Question

Quizplus · Accepted Answer

This question requires familiarity with transfer pricing and the potential objectives from an internal seller's perspective. Choice A is the only choice that accurately depicts a potential transfer price objective from the perspective of the seller. The other three choices all contain incorrect portions of the objective and are not accurate as it pertains to a seller's objectives.

Once Companies Have Decentralized, They Find Themselves in a Position