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The market price acts as an incentive to use up any spare capacity in the selling division of Apple Co.
FALSE
Using the market price as the transfer price encourages selling and buying decisions which appear to be in the best interests of the division’s performance. This leads to the company as a whole achieving optimal results as each division optimises its performance.
TRUE
please explain
The statement that the market price acts as an incentive to use up any spare capacity in the selling division of Apple Co. is false because the market price may not always serve as an incentive.
If say the market price is lower than the marginal cost or if it includes an undesirable markup for the selling division, it may not incentivise the division to use up spare capacity. Instead, the division might seek other things that provide a better return.
True
Using the market price as the transfer price can encourage selling and buying decisions that seem to be in the best interests of each division’s performance.
When divisions are evaluated based on their profitability, setting transfer prices at market rates can motivate managers to optimise their division’s performance. This, in turn, can lead to the company as a whole achieving optimal results, as each division strives to perform at its best.
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