When the Selling Division in an Internal Transfer Has Unsatisfied

question 28

Multiple Choice

When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred, the lowest acceptable transfer price for the selling division is:

• A) the 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.

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Definitions:

English Auction

A type of auction in which the price ascends as participants sequentially bid higher prices until only one bidder remains, who wins the item.

Reserve Price

This is the minimum price a seller is willing to accept for an item in an auction.

Profit-Maximizing

A strategy or process aimed at increasing a company's profits to the highest possible level.

Vickrey Auction

A type of sealed-bid auction where the highest bidder wins but pays the price offered by the second-highest bid.