Define market-based transfer price. When should market-based transfer pricing be used? Explain your answer.
What will be an ideal response?
Market-based transfer price is a transfer price based on the current market value of the goods. It is used when the division is operating at capacity because the division has the choice to sell to customers outside the company. Setting the transfer price below current market value would decrease the contribution margin and company profits.
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What will be an ideal response?