3310solmod28

3310solmod28 - Module 28 Answers 14-1. A transfer price is...

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Module 28 Answers 14-1. A transfer price is used to record the revenue or the cost from a sale between units (e.g., divisions) of a firm. It allows the completion of separate financial statements within the firm. 14-4. The key limitation is that market prices are often not readily available. The limitations of market-based transfer prices exist when the market price does not reflect the opportunity cost of the goods and services, for example when idle capacity is present. Also, temporary short-run fluctuations in market prices could lead to suboptimal long-run decisions. The limitation of cost-based transfer pricing is that it requires the computation of cost. The resulting transfer price might distort decision-making and lead to in disputes between divisions. 14-6. Reasons not to use market prices include situations where: (1) market prices are not readily available, (2) market prices lead to suboptimal behavior (for example, when the supplier division has idle capacity), or (3) the company is not otherwise
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This note was uploaded on 11/13/2008 for the course ACCT 305 taught by Professor Franz during the Spring '07 term at S.F. State.

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3310solmod28 - Module 28 Answers 14-1. A transfer price is...

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