Which of the Following Is True About Transfer Pricing

question 97

Multiple Choice

Which of the following is true about transfer pricing?

• A) The maximum price that the buying division is willing to pay is the higher of the eventual contribution generated from an internal transaction and the price of purchasing from an external party
• B) The selling division must always set a transfer price above the market price of the product to make the transaction economically feasible for the buying division.
• C) There is generally a minimum transfer price the selling division will not go below based on its own cost structure.
• D) The transfer-price range lies between the its fixed cost per unit and the higher of its contribution or price at which the product is available from external suppliers

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Definitions:

Budget Constraint

A representation of all the combinations of goods and services that a consumer can afford with a fixed income and prices.

Indifference Curve

A graph representing different bundles of goods between which a consumer is indifferent, showing combinations that give the consumer the same level of satisfaction.

Income

The amount of money or its equivalent received during a period of time in exchange for labor, goods, or services, or as profit on capital.

Indifference Curves

Graphical representations in economics showing combinations of goods among which a consumer is indifferent, helping to analyze consumer choices.