What are the advantages and disadvantages of market value as a transfer price?
Market value has the advantage of being an external measure of value. It is subject to manipulation by neither the internal buying nor selling segment. In addition, it captures the relevant opportunity costs because it is a measure of the price that the internal selling unit could receive for its production from another buyer and a measure of the cost that would be incurred by the internal buying segment to purchase from an alternative seller. The disadvantages of market price include the possibility that there may not be a comparable product in the marketplace. If demand for the product has declined, establishing a transfer price becomes more difficult. Additionally, if the firm has experienced a reduction in expenses related to the product, market price may not be reliable or appropriate as a transfer price.
You might also like to view...
Did Sotheby’s have an ethical obligation to intervene and pay the consignees after Ritchie’s failed to be able to do so?
List and briefly define Maslow's Hierarchy of Needs
What will be an ideal response?
My math teacher not only helps me solve difficult equations, but she also wrote me a great letter of recommendation for the college I want to attend that has a highly ranked math department. She is using which servant leader behavior?
A. helping followers grow and succeed B. emotional healing C. behaving ethically D. conceptualizing
Choudhury Corporation is considering the following three investment projects (Ignore income taxes.): Project HProject IProject JInvestment required$11,000 $53,000 $89,000 Present value of cash inflows$12,980 $61,480 $96,120 The only cash outflows are the initial investments in the projects.Required:Rank the investment projects using the project profitability index.
What will be an ideal response?