From the buying division's perspective, when a transferred item can be purchased from an outside supplier, the price charged by the outside supplier represents an upper bound on the charge that should be made on transfers between the selling and buying divisions.

This statement is true because if the transferring division charges a price that is higher than the price charged by an outside supplier, it would not make sense for the buying division to purchase from the transferring division and would opt to purchase from an outside supplier. Therefore, the outside supplier's price acts as an upper bound on the transfer price.