The FNM group includes two divisions which operate as profit centres. M division forms a number of raw materials, one of which is used further in the F division to build an end product. M division can also sell the raw material it produces to customers outside the FNM group. Which of these approaches to setting a transfer price will be most beneficial to the performance of the M division? Solution

A.The transfer price should at least be the external market price at which the M division can sell the raw material. 

B.The transfer price should be based on full cost plus a mark-up.

C.The transfer price should be based on external market price only if there is demand remaining for the raw material. 

D.The transfer price should be unit marginal cost plus a mark-up