Which of the Following Statements About Transfer Prices Is/are True

question 75

Multiple Choice

Which of the following statements about transfer prices is/are true?
i. When the producing division has excess capacity and the external market is imperfectly competitive, the general transfer-pricing rule and the external market price will be the same.
ii. If the transfer price is set at the market price, the supplying division will be indifferent to selling internally or externally.
iii. If the transfer price is set at the market price, the buying division will usually purchase goods from inside its organisation, if product specifications are met.

• A) i and ii
• B) ii and iii
• C) i and iii
• D) All of the given answers

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Definitions:

Profit

The financial gain realized when the amount of revenue gained exceeds the expenses, costs, and taxes involved in sustaining the activity in question.

Long Run Equilibrium

A state in an economy in which all factors of production and inputs can be varied, allowing firms to make adjustments and leading to the normalization of prices and output.

Industry's Adjustment

The process by which industries adapt to changes in economic conditions, technology, or market demands.

Average Total Cost

The total cost of production divided by the number of units produced, representing the average cost per unit.