When Considering Setting the Transfer Price at the Market Price

question 57

Multiple Choice

When considering setting the transfer price at the market price of a product similar to the intermediate good that is already available on the market

• A)It is appropriate to ignore that the market price includes a margin above marginal cost
• B)It is OK if the product on the market includes costly features your downstream division does not use
• C)it is OK if the product on the market is inexpensive because its quality is lower than you use
• D)if it is similar enough,it calls into question whether there are gains from producing it in-house

---

Definitions:

Percentage

A proportion or share in relation to a whole, represented as a number out of 100.

Receivables Basis

An accounting method that recognizes revenue when related receivables are actually or constructively received.

Allowance Account

A contra account related to accounts receivable that represents the estimate of receivables that are likely to be uncollectible.

Allowance Account

A contra-asset account used to estimate and offset losses from potentially uncollectible accounts receivable.