When the Selling Division in an Internal Transfer Has Unsatisfied

question 113

Multiple Choice

When the selling division in an internal transfer has unsatisfied demand from outside customers for the product that is being transferred,then the lowest acceptable transfer price as far as the selling division is concerned is:

• A)variable cost of producing a unit of product.
• B)the full absorption cost of producing a unit of product.
• C)the market price charged to outside customers.
• D)the amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use.
• E)all the costs of producing a unit of product.

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Definitions:

Capital Asset Pricing Model

A model that describes the relationship between systemic risk and expected return for assets, particularly stocks, used to calculate a theoretically appropriate required rate of return for an asset, given its non-diversifiable risk.

Expected Rate

The anticipated return on an investment based on historical averages, interest rates, or economic indicators.

Illiquidity Premiums

Additional return expected by investors for holding assets that are difficult to trade quickly without significant price concessions.

Systematic Risk Factors

Events or conditions that affect all assets to some degree, such as macroeconomic changes, geopolitical incidents, or widespread financial crises.