Final answer:
A market-based transfer price takes into account the sales price of goods, reflecting the opportunity cost of internal transfers in line with market conditions and ensuring profit maximization.
Step-by-step explanation:
A market-based transfer price considers the sales price of goods when determining the transfer price. This approach takes into account the price at which goods or services could be sold for on the open market, thereby reflecting the opportunity cost of transferring goods or services internally within a company.
The sales price is influenced by several factors, including market structure, variable costs, and contribution margin. It is crucial to align transfer pricing with market conditions to ensure that internal divisions are motivated to perform efficiently and that the company as a whole maximizes its profits.
Decisions on the profit-maximizing quantity to produce and the price to charge consider a firm's total costs—both fixed and variable—as well as sales and revenue alongside the market structure. In the long run, analyzing the firm's cost structure is vital for understanding the full economic impact on pricing strategies.
Therefore, the correct answer is B) sales price of goods.