7. Transfer pricing Please complete the following two questions. A. Which of the

Question

7. Transfer pricing

Please complete the following two questions.

A. Which of the following is a common approah to setting a transfer price?

B. Division A is operating at full capacity and can sell all it produces either to Divison B or to outside customers at a price of $30. Divison B currently buys the same product from an outside source for $30. Which iof the following statements is true about a transfer price of $30?

The market price approach The negotiated price approach The cost approach All these approaches

Explanation / Answer

7. Transfer pricing

Please complete the following two questions.

A. Which of the following is a common approah to setting a transfer price?

All of these three approaches are common in market price we transfer at market price , negotiated price is price as agreed between departments and cost approach is transfer at cost with some margin

B. Division A is operating at full capacity and can sell all it produces either to Divison B or to outside customers at a price of $30. Divison B currently buys the same product from an outside source for $30. Which iof the following statements is true about a transfer price of $30?

since division A is operating at full capacity it will not agree for a price anything below $30 and Division B will not pay anything higher since its the price it gets from outside player hence no change and no effect on income

The market price approach The negotiated price approach The cost approach All these approaches

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