All of the following are correct statements about the market-based approach except that it
A) assumes that the transfer price should be based on the most objective inputs possible.
B) provides a fairer allocation of the company's contribution margin to each division.
C) produces a higher company contribution margin than the cost-based approach.
D) ensures that each division manager is properly motivated and rewarded.

Question

Quizplus · Accepted Answer

While the market-based approach is known for producing more accurate transfer prices than cost-based approaches, it does not necessarily always lead to a higher company contribution margin. The goal of the market-based approach is to set transfer prices that reflect the price that each division could fetch on the open market, which can result in transfer prices that are higher or lower than costs. The other statements about the market-based approach (A, B, and D) are all correct.

All of the Following Are Correct Statements About the Market-Based