Problem: Under the general guideline for transfer pricing, the minimum transfer price will vary depending on whether the supplying division has unused ?capacity. Do you? agree? Explain.
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A. Yes. The general? transfer-pricing guideline specifies that the minimum transfer price equals the incremental cost per unit incurred up to the point of transfer plus the opportunity cost per unit to the supplying division. When the supplying division has idle? capacity, its opportunity cost per unit is? positive; when the supplying division has no idle? capacity, its opportunity cost per unit is zero.? Hence, the minimum transfer price will vary depending on whether the supplying division has idle capacity or not.
B. Yes. The general? transfer-pricing guideline specifies that the minimum transfer price equals the incremental cost per unit incurred up to the point of transfer minus the opportunity cost per unit to the supplying division. When the supplying division has idle? capacity, its opportunity cost per unit is? negative; when the supplying division has no idle? capacity, its opportunity cost per unit is zero.? Hence, the minimum transfer price will vary depending on whether the supplying division has idle capacity or not.
C. Yes. The general? transfer-pricing guideline specifies that the minimum transfer price equals the incremental cost per unit incurred up to the point of transfer plus the opportunity cost per unit to the supplying division. When the supplying division has idle? capacity, its opportunity cost per unit is? zero; when the supplying division has no idle? capacity, its opportunity cost per unit is positive.? Hence, the minimum transfer price will vary depending on whether the supplying division has idle capacity or not.
D. No. The general? transfer-pricing guideline specifies that the minimum transfer price equals the incremental cost per unit incurred up to the point of transfer. Opportunity cost is not factored into the? price, therefore, the minimum transfer price will not vary depending on whether the supplying division has idle capacity or not.