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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

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

When is the negotiated price approach preferred over the market price approach in setting transfer prices?

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 factor which allows the use of negotiated price approach over market price approach, while setting transfer prices

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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