When there is unused capacity,________.
A) the transfer-price range lies between the its variable cost per unit and the higher of its contribution or price at which the product is available from external suppliers
B) the transfer-price range lies between the maximum price at which the selling division is willing to sell and the minimum price the buying division is willing to pay
C) the transfer-price range lies between the minimum price at which the selling division is willing to sell and the maximum price the buying division is willing to pay
D) the transfer-price range lies between the its fixed cost per unit and the higher of its contribution or price at which the product is available from external suppliers

Question

Quizplus · Accepted Answer

When there is unused capacity, the transfer-price range should be set between the minimum price at which the seller is willing to sell and the maxim price the buyer is willing to pay. This allows for the most efficient use of resources within the organization while still ensuring a fair price for the product or service being transferred. Option A and D are incorrect as they take into account costs that may not reflect the market value of the product or service being transferred. Option B is incorrect as it only takes into account the preferences of the seller and buyer, rather than also considering market factors.

When There Is Unused Capacity,________