In analyzing transfer prices, the ________.
A) buyer will not willingly purchase a product for less than the incremental costs incurred to manufacture the product internally
B) seller will not willingly sell a product for less than the incremental costs incurred to make the product
C) buyer will willingly pay more than the ceiling transfer price
D) buyer will not pay less than the ceiling transfer price

Question

Quizplus · Accepted Answer

Transfer prices are the prices charged for goods and services sold between two different divisions or subsidiaries of the same company. In order to ensure that both the buyer and seller divisions are making a profit, the transfer price must be set at a level that is acceptable to both parties. However, the seller will not willingly sell a product for less than the incremental costs incurred to make the product, as this would result in a loss for the division. Option A is incorrect because often, the buyer may be willing to purchase a product for less than the incremental costs incurred to manufacture it internally, if the transfer price is still lower than what they could obtain externally. Options C and D are also incorrect as they imply that the buyer has no limit to what they are willing to pay, which is not necessarily true.

In Analyzing Transfer Prices, the ________