Which of the Following Is the Formula for Setting a Minimum

question 28

Multiple Choice

Which of the following is the formula for setting a minimum transfer price?

• A)Sales less variable cost
• B)Contribution less income taxes and interest
• C)Variable cost to produce/sell + contribution margin forgone from the transfer
• D)Variable cost to produce/sell + allocated fixed costs

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Definitions:

Minimum Lease Payments

The lowest amount that a lessee is expected to pay over the lease term, as specified in a lease agreement.

Leased Asset's Fair Value

The estimated market value of an asset under lease, which should represent what the asset would sell for in an arm's length transaction.

GAAP

Generally Accepted Accounting Principles, a common set of accounting principles, standards, and procedures that companies must follow when they compile their financial statements.

Type I And Type II

Commonly refers to errors in hypothesis testing: Type I error is rejecting a true null hypothesis, while Type II error is failing to reject a false null hypothesis.