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Hi there
Could you explain how/why a transfer value at market price could act as a disincentive to use up spare capacity in certain circumstances (this is stated as a possible disadvantage in the BPP study text and I cannot think why this would be).
Transferring at market price is only sensible if all of the production could be sold externally.
For any of the production for which there is not external demand, then the transfer price should be anything in excess of the marginal cost of production.I explain all of this 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.
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