COST ACCOUNTING
TRANSFER PRICING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The shoe division received an outside bid for the sole at a price of $10. The shoe division is currently offering a transfer price of $6 to the sole division. The cost of sole products is $7 before deducting marketing costs $2. The sole division typically sells
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$7
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$9
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$10
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$12
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Explanation:
Detailed explanation-1: -Transfer pricing accounting occurs when goods or services are exchanged between divisions of the same company. A transfer price is based on market prices in charging another division, subsidiary, or holding company for services rendered.
Detailed explanation-2: -If the selling division does not meet all bonafide outside prices, then the buying division is free to purchase outside.
Detailed explanation-3: -Transfer Price = Outlay Cost + Opportunity Cost For example, consider a division that makes hats. The cost of making one hat is $2. That division can sell the hat in the marketplace for the market price of $5. Therefore, the opportunity cost of selling the hat internally instead of externally is $3.
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