The Transfer Price Approach That Will Result in the Largest

question 21

Multiple Choice

The transfer price approach that will result in the largest contribution margin to the buying division is the

• A) cost-based approach.
• B) market-based approach.
• C) negotiated price approach.
• D) time-and-material pricing approach.

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Definitions:

Price of Capital

The cost of using capital goods in production, which can include interest payments on loans or rent on equipment.

Marginal Product

The additional output gained by adding one more unit of a specific input, keeping all other inputs constant.

Economic Profit

The profit from an activity or business venture after subtracting both explicit and implicit costs, including opportunity costs.

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment's cost.