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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

When using the negotiated price approach to transfer pricing, within what range should the transfer price be established?

To determine

Transfer price: The price charged for the goods and services transferred among the divisions is referred to as transfer price.

Approaches for setting transfer prices:

  • Market price approach
  • Negotiated price approach
  • Cost price approach

To indicate: The range for setting transfer price, when negotiated price approach is preferred over market price approach

Explanation
If the selling or supplying division holds excess capacity, then the buying division could prefer the negotiated price approach over market price approach...

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