The correct answer is: D. None of these
In inter process profits, the output of one process is transferred from one process to another at the transfer price. The transfer price is the price at which one department or division of a company sells goods or services to another department or division of the same company. The transfer price should be set in a way that benefits the company as a whole, and should not be based on market prices or actual costs.
There are several factors to consider when setting a transfer price, including:
- The costs incurred by the producing department
- The benefits received by the using department
- The need to motivate managers
- The need to comply with tax laws
The transfer price should be set at a level that allows both departments to make a profit, and that does not distort the company’s overall financial results.
Option A is incorrect because the transfer price is not necessarily set at the market price. The transfer price may be set at a higher or lower price than the market price, depending on the factors listed above.
Option B is incorrect because the transfer price is not necessarily set at the actual cost. The transfer price may be set at a higher or lower price than the actual cost, depending on the factors listed above.
Option C is incorrect because both options A and B are incorrect.