Asked by
Torie Pollard
on Nov 19, 2024
Verified
Whenever the selling division must give up outside sales in order to sell internally, it has an opportunity cost that should be considered in setting the transfer price.
Selling Division
A segment of a company focused on the sales and distribution of products or services.
Opportunity Cost
The value of the best alternative that is forgone when a particular decision is made, representing the benefits that could have been received from that alternative.
Transfer Price
The price charged when one responsibility center within a company provides goods or services to another responsibility center in the same company.
- Gain insight into the role of transfer pricing and its effects on divisional outcomes.
- Recognize the essentiality of incorporating opportunity costs in the formulation of transfer prices and the analysis of performance outcomes.
Verified Answer
CA
Learning Objectives
- Gain insight into the role of transfer pricing and its effects on divisional outcomes.
- Recognize the essentiality of incorporating opportunity costs in the formulation of transfer prices and the analysis of performance outcomes.