Question

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, less costs saved by transferring internally. D. the amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use.

Answer 1

Answer:

C. the market price charged to outside customers, less costs saved by transferring internally.

Explanation:

Divisional manager performance is evaluated separately from one department to another. The Selling department need a minimum price equivalent to price the items fetch in market transaction to raise performance.

However goal congruence has to be met, therefore the price must exclude savings as a result of Internal transfer for the interest of the firm as a whole.