When the transfer price chosen by management charges another department the price that would be charged to outside customers, this type of transfer pricing is called:
A) marginal cost transfer pricing.
B) cost-based transfer pricing.
C) market-based transfer pricing.
D) negotiated transfer pricing.

Question

Quizplus · Accepted Answer

Market-based transfer pricing charges the department that is buying goods or services from another internal department the same price that would be charged to outside customers. This approach ensures that the selling department is being compensated at a fair market value and that the buying department is not being overcharged.

When the Transfer Price Chosen by Management Charges Another Department