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please help me uderstand the question 272 of bpp revision kit.
When goods are transferred from one division in a company to another division, and there is an intermediate external market for the transferred item in which the goods could be sold, which of the following states the economic transfer pricing rule for what the maximum transfer price should be?
the answer give is….: The lower of the net marginal revenue for the transferring-in division and the external purchase price in the market for the intermediate product.
i do not understand the explanation given in the book
The answer is correct. That is the standard rule and I explain its meaning (with examples) in my free lectures on transfer pricing.
The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.