Question

when the selling division in an internal transfer has excess capacity for the product that is being transferred, what is the lowest acceptable transfer price as far as the selling division is concerned? multiple choice the amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use. the market price charged to outside customers, less any costs saved by transferring internally. the amount that the purchasing division would have to pay an outside seller to acquire a similar product for its use. variable cost of producing a unit of product.

Answer 1

The lowest acceptable transfer price for a selling division with excess capacity is the variable cost of producing a unit of product, ensuring it does not incur a loss on the transfer.

Step-by-step explanation:

When the selling division in an internal transfer has excess capacity for the product that is being transferred, the lowest acceptable transfer price for the selling division would be the variable cost of producing a unit of product. This is because, with excess capacity, fixed costs are already covered, and the selling division would want to cover at least the additional costs of producing more units. Charging a price equal to or above variable costs ensures that the selling division does not incur a loss on the units transferred. Therefore, the selling division would be indifferent to selling the excess capacity internally or externally as long as it covers the variable costs.