The transfer price between subsidiaries that maximizes profit for the parent company A. is the price that minimizes the purchasing subsidiary's marginal cost. B. is the marginal cost of the producing subsidiary. C. cannot be determined in the absence of nonminusproduction cost considerations such as taxes. D. is the monopoly price of the producing subsidiary.

Question

Business

Silvia

23 January, 13:10

The transfer price between subsidiaries that maximizes profit for the parent company A. is the price that minimizes the purchasing subsidiary's marginal cost. B. is the marginal cost of the producing subsidiary. C. cannot be determined in the absence of nonminusproduction cost considerations such as taxes. D. is the monopoly price of the producing subsidiary.

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Hubbard · Answer 1

B. is the marginal cost of the producing subsidiary

Explanation:

The subsidiary company will not sale at loss. Their transfer price should be at least enough to cover the additional cost generated for the units sold to parent company.

a. - the sales price do not alter the cost.

c. - the marginal cost can be determinated, as is the cost of producing an additional units forthe relevant range of capacity for the subsidiary company.

d. - if the subidiary sales at monopoly price, it will be increasing his profit by selling a higher price and lower quantity. That is not profitable for the parent company which, is what we are looking for.