Development of a transfer price involves
A)the use of the highest external market price so that the transferring division is very profitable.
B)determination of an appropriate profit markup.
C)computation of the selling and delivery costs of the item being transferred.
D)the use of a team of lawyers representing the outside interests of the company.

Question

Quizplus · Accepted Answer

The development of a transfer price involves determining an appropriate profit markup to ensure that the transferring division earns a fair profit while also considering the cost of the item being transferred. Option A is incorrect as using the highest external market price may not be feasible or may not result in fair profits for the transferring division. Option C is only a part of the cost consideration in determining the transfer price. Option D is not relevant to the development of a transfer price.

Development of a Transfer Price Involves