What is the general economic rule to set transfer prices? a. Set the transfer price at...
What is the general economic rule to set transfer prices?
a. Set the transfer price at the variable production cost plus any opportunity cost of the transfer.
b. Set the transfer price at the market price of the product.
c. Set the transfer price at the absorption cost.
Homework Answers
The correct answer is
a) Set the transfer price at variable production cost plus any opportunity cost to the transfer.
Explanation
When ever transfer of any product is made from one division to another at variable cost along with oppotunity cost if any. If their is no opportunity cost then it should be transferred at variable cost. For example a division has spare capacity, then it can transfer good at variable cost as their is no opportunity cost but if t has to sacrifice the external demand to meet the other division needs, then it can charge opportunity cost along with variable cost.
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What is the general economic rule to set transfer prices?
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Determining Market-Based and Negotiated Transfer Prices Carreker, Inc., has a number of divisions, including the Alamosa Division, producer of surgical blades, and the Tavaris Division, a manufacturer of medical instruments. Alamosa Division produces a 2.6 cm steel blade that can be used by Tavaris Division in the production of scalpels. The market price of the blade is $21.00. Cost information for the blade is: Variable product cost $9.40 Fixed cost 5.60 Total product cost $15.00 Tavaris needs 15,000 units of...
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