Concept:In branch accounting, sending goods at cost plus mark-up means the head office invoices the branch at a value greater than the original cost. This transfer price must be recovered from sales.
Explanation:Suppose the cost of an item is
C and the agreed mark-up is
m%.
The transfer price becomes
C(1+m).
The branch records the goods at this transfer price, not at cost price.
When selling to customers, the branch is not forced to fix one exact selling price.
It may sell above the transfer price to earn a profit, or even at the transfer price to break even.
However, it must never sell below the transfer price.
Selling below that amount would make the branch unable to settle what it owes to head office, creating a loss.
Therefore, the branch may choose any selling price, provided it is not lower than the transfer price.
Answer:B. any price but not below the transfer price.