In Setting Internal Transfer Prices, the Minimum Price That the Selling

question 75

Multiple Choice

In setting internal transfer prices, the minimum price that the selling division would accept is

• A)a price that will result in a profit to the selling division.
• B)a price that will result in a profit to the purchasing division.
• C)its variable cost of the product plus opportunity costs lost by the transfer.
• D)its variable cost plus an internal profit margin.

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Definitions:

Overhead Applied

The allocation of indirect costs to products, jobs, or activities based on a predetermined rate.

Job A496

A specific work order or project identifier used to track and manage a particular job within a company.

Total Job Cost

The complete cost of a specific job or project, including materials, labor, and overhead.

Predetermined Manufacturing Overhead Rate

An estimated rate used to assign manufacturing overhead costs to products or job orders, calculated before the periods begins based on expected annual overhead costs and activity levels.