The Eastern Division Sells Goods Internally to the Western Division

The Eastern Division sells goods internally to the Western Division at Tennessee Company. The quoted external price in industry publications from a supplier near Eastern is $200 per ton plus transportation. It costs $20 per ton to transport the goods to Western. Eastern's actual market cost per ton to buy the direct materials to make the transferred product is $100 and actual per-ton direct labor is $50. Other actual costs of storage and handling are $40. Tennessee Company's president selects a $220 transfer price. This is an example of: (CIA adapted)

A) market-based transfer pricing.
B) cost-based transfer pricing.
C) negotiated transfer pricing.
D) cost plus 20% transfer pricing.

Correct Answer:

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