If there is a competitive outside market for the transferred product, then the best transfer price is the
A) cost-based price.
B) negotiated price.
C) market price.
D) price set by central management.
E) None of these.

Question

Quizplus · Accepted Answer

If there is a competitive outside market for the transferred product, then the best transfer price is the market price. This is because if the transfer price is below the market price, the selling division is at a disadvantage and may be unable to compete with external sellers. On the other hand, if the transfer price is above the market price, the buying division is at a disadvantage since it could have obtained the same product at a lower cost from an external seller. Therefore, to promote efficiency and ensure competitiveness, the market price is the best transfer price in this situation.

If There Is a Competitive Outside Market for the Transferred