Question 1
Which of the following is the formula for setting a minimum transfer price?
◦ Sales less variable cost
◦ Variable cost to produce/sell + allocated fixed costs
◦ Contribution less income taxes and interest
◦ Variable cost to produce/sell + contribution margin forgone from the transfer
Question 2
The goal of setting a transfer price is to
◦ maximize the profit of the transferring division.
◦ maximize the overall profit of the organization.
◦ ensure that all divisions have the resources they need to operate.
◦ motivate managers to behave in the best interest of the firm as a whole.