When a division is operating at full capacity,the transfer price to other divisions should include opportunity costs.

Question

Quizplus · Accepted Answer

When a division is operating at full capacity, it means it has no excess capacity to provide goods or services to other divisions without giving up some of its own sales. Therefore, the transfer price should include the opportunity cost of what the division could have earned if it had used that capacity to make additional sales for itself. This ensures that each division is making decisions in the best interest of the company as a whole rather than just its own division.

When a Division Is Operating at Full Capacity,the Transfer Price