When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred,what is the lowest acceptable transfer price as far as the selling division is concerned?
A) Variable cost of producing a unit of product.
B) The full absorption cost of producing a unit of product.
C) The market price charged to outside customers,less any costs saved by transferring internally.
D) The amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use.

Question

Quizplus · Accepted Answer

The lowest acceptable transfer price for the selling division when it has unsatisfied demand from outside customers for the product being transferred is the market price charged to outside customers, less any costs saved by transferring internally. This ensures that the selling division can still meet external demand at a profitable price while the purchasing division can acquire the product at a price that allows it to compete with external sources. Options A and B do not consider the external market price and may result in loss of potential profits from outside customers. Option D does not consider the savings incurred by the purchasing division through internal transfer.

When the Selling Division in an Internal Transfer Has Unsatisfied