Under which of the following conditions is a market-based transfer price likely to be used?
A) There is no excess capacity.
B) No market price exists.
C) Excess capacity exists.
D) Excess capacity exists and the market price covers fixed costs.
E) There is only an internal market for the item in question.

Question

Quizplus · Accepted Answer

A market-based transfer price is likely to be used when there is no excess capacity because the market price reflects the opportunity cost of selling internally versus externally.

Under Which of the Following Conditions Is a Market-Based Transfer