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:

Bad Debt Expense

The cost associated with accounts receivable that a company is unable to collect from its debtors.

Credit Sales

Transactions where goods or services are provided to a customer with an agreement to receive payment at a later date.

Invoice Price

The amount charged by the seller to the buyer, detailing the cost of the product or service sold.

Merchandise

Merchandise refers to the goods that a business purchases to resell at a profit.