The Negotiated Transfer Price Approach Should Be Used When

question 32

Multiple Choice

The negotiated transfer price approach should be used when

• A) the selling division has available capacity and is willing to accept less than the market price.
• B) an outside market for the goods does not exist.
• C) no market price is available.
• D) any of these situations exist.

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Definitions:

Predetermined Overhead Rate

An estimated rate used to allocate manufacturing overhead costs to products, calculated at the beginning of an accounting period.

Manufacturing Overhead

All indirect costs associated with manufacturing, including equipment maintenance, utilities, and factory management salaries.

Estimated Total

A calculated approximate value representing the total amount or quantity of something, often used in planning or forecasting.

Predetermined Overhead Rate

An estimated overhead rate used to allocate manufacturing overhead costs to products or job orders, calculated before the costs are incurred.