ECONOMICS

Detailed explanation-1: -Market price. Answer (D) is correct. REQUIRED: The optimal method for establishing a transferprice, DISCUSSION: Transfer prices should promote congruenceof subunit goals with those of the organization, subunitautonomy, and managerial effort. Although no rule exists fordetermining the transfer.

Detailed explanation-2: -Market-based transfer pricing is a method of allocating price or cost differences to one or more markets. A market is the basis for market-based transfer prices and represents the market environment in which an entity buys and sells related products and services.

Detailed explanation-3: -The optimal transfer price is based on a number of factors, including the cost of the item and which entity receives the benefit of profits. If management believes it benefits the corporation as a whole for company A to realize 100% of the profits, the transfer price is set using the market price of the product.

Detailed explanation-4: -Because the lowest transfer price for the selling division is the market price and the maximum price for the purchasing division is also the market price, the only feasible transfer price is the market price. The market price might be used to settle disputes between purchasing and selling divisions.

Detailed explanation-5: -The most common method to establish transfer prices is the cost-based transfer pricing approach as it is simple to use, easy to understand, and has available cost data.