When there is excess capacity in the selling division, which of the following statements is false?
A) There is no opportunity cost because the selling division can still meet external demand
B) The general rule would show a transfer price equal to outlay cost
C) The demand for the selling division's product from all sources is less than the plant's production capacity
D) All are true statements

Question

Quizplus · Accepted Answer

All the statements provided are true in the context of a situation where there is excess capacity in the selling division. A) correctly states that there is no opportunity cost in such a scenario because the selling division can meet both internal and external demand without sacrificing sales. B) is accurate because, with excess capacity, the transfer price often falls to the outlay cost or variable cost, as there's no need to cover opportunity costs. C) describes the condition of excess capacity accurately, where the demand (both internal and external) is less than what the plant can produce.

When There Is Excess Capacity in the Selling Division, Which