Which of the Following Statements About Transfer Pricing Is True

question 21

Multiple Choice

Which of the following statements about transfer pricing is true?

• A)The higher the transfer price, the larger the gross profits of the transferring division relative to the receiving division.
• B)Very high markup policy used in the transfer pricing to a subsidiary makes the adjusted present value (APV) of that subsidiary's capital expenditure appear less attractive.
• C)Very low markup policy used in the transfer pricing to a subsidiary makes the adjusted present value (APV) of that subsidiary's capital expenditure appear less attractive.
• D)Both a and b

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Definitions:

Cost of Goods Sold

Costs directly tied to the creation of products sold by a company, encompassing both materials and labor expenses.

Cash Budget

A financial plan that estimates cash inflows and outflows over a specific period, helping businesses manage their cash resources.

Budgeted Cash Disbursements

An estimate of all cash payments that a business plans to make over a specific period, including expenses, purchases, and other payouts.

Selling and Administrative Expense Budget

A detailed plan that estimates the expected selling and administrative expenses for a company over a specific period, helping in the management and planning of overhead costs.