The transfer price that should be used by top management in evaluating whether a division should buy within the company or from an outside supplier is:
A) negotiated transfer price.
B) transfer price based on full cost.
C) transfer price based on variable cost.
D) transfer price based on an open market price.

Question

Quizplus · Accepted Answer

The transfer price that should be used by top management in evaluating whether a division should buy within the company or from an outside supplier is based on an open market price. This ensures that the division is not overpaying for the goods or services they are purchasing from another division within the company, and that they are receiving a fair price compared to what they could get from an outside supplier. Negotiated transfer prices, transfer prices based on full cost, and transfer prices based on variable cost may not accurately reflect the true market value of the goods or services being transferred.

The Transfer Price That Should Be Used by Top Management