An Advantage of a Negotiated Transfer Price of a Product

question 146

Multiple Choice

An advantage of a negotiated transfer price of a product to be transferred between divisions is the ________.

• A) close relationship between the negotiated price and the market price
• B) negotiated transfer price preserves divisional autonomy
• C) negotiations usually do not require much time and energy
• D) simplicity of its computations and close approximation to market price

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Definitions:

Manufacturing Overhead

All indirect costs associated with the production process, like utilities, maintenance, and salaries for production managers.

Predetermined Overhead Rate

A rate calculated before a period begins, used to allocate projected overhead costs to products or services based on a chosen activity base.

Raw Materials

The basic substances or components that are used in the manufacturing process to produce finished goods.

T-Accounts

A visual representation used in accounting to depict the debits and credits of an account, showing two sides of transactions within a ledger.