Asked by Sierra Burress on Sep 24, 2024
Verified
When a transfer price increases
A) the profits of the division producing the intermediate product will rise
B) the profits of the division producing the intermediate product will fall
C) the costs of the division producing the intermediate product will rise
D) the costs of the division producing the intermediate product will fall
Transfer Price
The price at which goods or services are sold between departments within the same organization or between affiliated companies.
Division Producing
An organizational unit within a company that is responsible for creating a specific group of products or services.
Intermediate Product
Goods used as inputs in the production of final products, not sold directly to end consumers.
- Understand the ramifications of altering transfer prices on the profit margins of divisions.
Verified Answer
WR
Whyeethia Respress1 day ago
Final Answer :
A
Explanation :
When a transfer price increases, the division producing the intermediate product will see an increase in its revenues for the products it transfers to other divisions, leading to a potential rise in its profits, assuming costs remain constant or do not increase proportionately.
Learning Objectives
- Understand the ramifications of altering transfer prices on the profit margins of divisions.