In General, If a Potential Transfer Has No Effect on Divisional

question 30

Multiple Choice

In general, if a potential transfer has no effect on divisional profits:

• A) no transfer will take place between the divisions.
• B) managers will be indifferent between making the transfer or not.
• C) the organization should not intervene to force a transfer.
• D) the optimal transfer price is the opportunity cost for the buying division.

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Definitions:

Cost of Goods Sold

The direct costs attributable to the production of the goods sold by a company, including material costs and direct labor.

Gross Profit

The income a business earns after subtracting the expenses related to the production and sale of its goods, or the expenses incurred in delivering its services.

Net Income

The total profit of a company after all expenses, including taxes and costs, have been deducted from total revenue.

Supplies Used

The cost of supplies consumed during a specific period, often recorded as an expense on the income statement.