An internal transfer between two divisions is in the best economic interest of the entire organization when:
A) the variable costs plus the opportunity cost of the selling division is greater than the external price for the buying division.
B) the variable costs plus the opportunity cost of the selling division is less than the external price for the buying division.
C) there is excess capacity in the buying division with no alternative use.
D) there is no established market prices for the buying division.

Question

Quizplus · Accepted Answer

When the variable costs plus the opportunity cost of the selling division is less than the external price for the buying division, it means that the transfer will result in cost savings for the organization. This is because the organization can avoid paying the external price by transferring the goods or services internally. Therefore, an internal transfer between two divisions is in the best economic interest of the entire organization when the cost savings of the transfer are greater than the opportunity cost of the selling division.

An Internal Transfer Between Two Divisions Is in the Best