In the context of transfer pricing,which of the following represents the maximum contribution margin forgone by the selling subunit if the product or service is transferred internally?
A) sub-optimal transfer price
B) notional loss
C) compromise sale
D) opportunity cost

Question

Quizplus · Accepted Answer

The concept of opportunity cost refers to the maximum contribution margin forgone by the selling subunit if the product or service is transferred internally. It represents the value of the next best alternative foregone in favor of the internal transfer. Therefore, opportunity cost is the best choice among the given options. A sub-optimal transfer price refers to a price that is not optimal for either the buying or selling subunit, leading to inefficiencies. Notional loss and compromise sale are not relevant to the context of transfer pricing.

In the Context of Transfer Pricing,which of the Following Represents