If a company adds up all the costs of producing an intermediate product - direct labor, materials, and overhead - to establish a transfer price, then it is using:
A) market-based transfer prices.
B) marginal cost transfer prices.
C) full-cost transfer prices.
D) success monopoly transfer prices.

Question

Quizplus · Accepted Answer

Full-cost transfer prices involve using the total cost of producing a product, including direct labor, materials, and overhead, to establish a transfer price. This approach assigns the total cost of production to the transferred product, allowing the selling division to recover all of its costs and earn a profit. This method is often used when there is little or no external market for the transferred product, so the cost of production is the only basis for determining the transfer price.

If a Company Adds Up All the Costs of Producing