An Internal Transfer Between Two Divisions Is in the Best

question 76

Multiple Choice

An internal transfer between two divisions is in the best economic interest of the entire organization when:

• A) the variable costs plus the opportunity cost of the selling division is greater than the external price for the buying division.
• B) the variable costs plus the opportunity cost of the selling division is less than the external price for the buying division.
• C) there is excess capacity in the buying division with no alternative use.
• D) there is no established market prices for the buying division.

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Definitions:

Gross Profit

A company's revenue minus its cost of goods sold, indicating the efficiency of its core operation excluding overhead.

LIFO

"Last In, First Out," an inventory valuation method where the last items added to inventory are the first to be used or sold.

Periodic Inventory System

An inventory accounting system where the inventory on hand is determined by physical count at the end of the accounting period, used to update inventory records and cost of goods sold.

Ending Inventory

The total value of all inventory in stock at the end of an accounting period, calculated before new inventory purchases are added.