Question

The term transfer price refers to?

1) The price at which a product or service is sold to a government entity.
2) The price at which a product or service is sold by one segment to another related segment.
3) The price at which a product or service is sold by a segment to an outside party.
4) None of these.

Answer 1

Transfer price is the price at which a product or service is sold by one segment to another related segment within the same organization, hence option 2 is correct.

Step-by-step explanation:

The term transfer price refers to the price at which a product or service is sold by one segment of a company to another related segment within the same company. In this context, the accurate answer to the student's question is option 2) The price at which a product or service is sold by one segment to another related segment. Transfer pricing is an internal policy and is used for various reasons, including the allocation of revenue and expenses between different divisions of a company to accurately reflect each division's economic performance.