Question

Bubba'a Bait and Beer has two divisions. The dollar amount used by the Bait Division which supplies a good or a service to the Beer Division is called a:

A. Market price.
B. Transfer price.
C. Fair price.
D. Agreed-upon price.

Answer 1

The correct answer is option b. The internal transaction value between divisions of the same company is known as the transfer price. In the context of the scenario, it refers to the amount Bubba's Bait Division charges the Beer Division.

Step-by-step explanation:

The dollar amount used by one division of a company when supplying goods or services to another division of the same company is referred to as the transfer price. Thus, for the situation described with Bubba's Bait and Beer, the correct answer is B. Transfer price.

Transfer pricing allows for the valuation of transactions within the company and can vary based on several factors, including market prices, cost-plus pricing, or negotiated strategies. It is crucial in financial reporting and tax compliance for businesses that operate with multiple divisions or in different geographic locations.