When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred,then the lowest acceptable transfer price as far as the selling division is concerned is:
A)variable cost of producing a unit of product.
B)the full absorption cost of producing a unit of product.
C)the market price charged to outside customers.
D)the amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use.
E)all the costs of producing a unit of product.

Question

Quizplus · Accepted Answer

The selling division in this scenario has unsatisfied demand from outside customers, which indicates that the market price for the product is higher than the cost of production. Therefore, the lowest acceptable transfer price for the selling division would be the market price charged to outside customers, as they would not want to lose potential revenue from selling the product to external customers.

When the Selling Division in an Internal Transfer Has Unsatisfied