Question

An advantage of using "negotiated" transfer prices is: A. Both the selling and buying units have complete information about costs B. The market price will always be chosen C. Once the price is set, it never needs to be adjusted D. It may take more of managers' time than is beneficial for the company

Answer 1

Answer:

The correct option is A,both the selling and buying units have complete information about costs.

Explanation:

A negotiated transfer price is a price agreed between the selling and buying divisions having considered factors such the external purchase price,the opportunity costs of selling internally and externally ,whether or not there is surplus capacity and may more.

Negotiated transfer price is fairer to both divisions as opposed to a transfer price imposed by management which could result in  low morale in the buying or selling division depending on whether the price was set too high or too low.