Final answer:
The transfer price is revenue to Division A and cost to Division B when Division A sells a component to Division B. This concept is entrenched in the managerial and cost accounting processes of internal company transactions.
Step-by-step explanation:
The question revolves around the concept of transfer pricing, which is common in managerial accounting and cost accounting. The transfer price represents the internal cost when one division of a company provides goods or services to another division.
Specifically, for Division A to sell a component to Division B, the transfer price would be considered revenue for Division A because it represents the amount Division A earns from the sale. Conversely, for Division B, the transfer price is regarded as a cost because it is the amount Division B spends to acquire the component from Division A.
This concept is central to internal financial transactions within a company and impacts how profits are reported and how costs are allocated between divisions. It has implications for divisional performance evaluation as well. The details of transfer pricing can be complex because they can involve issues related to efficiency, motivation, and even taxation, depending on whether divisions are in different countries with different tax rates.
Therefore, the correct answer to the question is that the transfer price is revenue to Division A and cost to Division B.