When a Sale Occurs Between Divisions of the Same Company

question 126

Multiple Choice

When a sale occurs between divisions of the same company, which transfer pricing approach may lead to the buying division overpricing its product?

• A) Cost based transfer pricing
• B) Market-based transfer pricing
• C) Negotiated transfer pricing
• D) Cost-plus transfer pricing

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Definitions:

Quasilinear Utility

A utility function where the utility is linear in one argument, typically representing money, allowing for the analysis of changes in wealth without the utility of wealth itself changing.

Consumption Increase

A rise in the amount of goods and services consumed by households or the economy over a period.

Price Increase

A rise in the cost of goods or services, affecting demand, supply, and inflation.

Optimal Consumption

The mix of goods and services that maximizes a consumer's utility given their budget constraints.