Which Statement Is True Concerning the Establishment of Transfer Prices

question 99

Multiple Choice

Which statement is true concerning the establishment of transfer prices?

• A)If the selling division is operating at capacity,the transfer price should be the sum of fixed and variable costs of production.
• B)If the selling division has idle capacity,and the idle facilities cannot be used for other purposes,the transfer price should be at least the variable costs of production.
• C)If the selling division is operating below capacity,the transfer price should be discounted.
• D)None of the answers is correct.

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Definitions:

Wholesalers

Merchants who buy goods from suppliers and manufacturers for sale to retailers.

Retailers

Merchants who buy goods from wholesalers for resale to customers.

Credit Terms

Conditions under which credit is extended by a seller to a buyer, detailing the repayment period, interest rate, and penalties for late payment.

Discount

A reduction in the price of goods or services, usually offered to encourage purchase or provided for early payment.