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A firm uses fabric from its own textile mill to manufacture furniture in its furniture division. There is a perfectly competitive external market for fabric.
A firm uses fabric from its own textile mill to manufacture furniture in its furniture division. There is a perfectly competitive external market for fabric. Which of the following statements are TRUE? Select ALL that apply. Question 18 options: The firm will avoid treating the furniture division as a profit center. The transfer price will be set equal to the marginal cost of fabric at the firm's textile mill, regardless of how the firm treats the textile mill (cost center vs profit center). The transfer price set by the firm for fabric will be greater than the price that prevails in the external fabric market. If the demand for furniture is low, the textile mill may end up supplying additional fabric to the external fabric market. If demand for furniture is high, the furniture division may purchase extra fabric from the external fabric market. If the firm treats the textile mill as a profit center, the transfer price of fabric will be set at the price that prevails in the external fabric market
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