ECONOMICS

Detailed explanation-1: -A company may calculate the minimum acceptable transfer price as equal to the variable costs or equal to the variable costs plus a calculated opportunity cost. Most companies will set the minimum transfer price at greater than or equal to the marginal cost of the selling division.

Detailed explanation-2: -Key Takeaways 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-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.

Detailed explanation-4: -Under the negotiated price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.