Which of the following transfer prices always results in both divisions voluntarily making the right decisions from the perspective of the company as a whole?
A)Variable cost-based transfer prices.
B)Full cost-based transfer prices.
C)Market-based transfer prices.
D)Negotiated transfer prices.
E)None of the above.

Question

Quizplus · Accepted Answer

Market-based transfer prices ensure that both divisions make decisions that are in the best interests of the company as a whole, as they reflect the current market value of the product or service being transferred. This encourages efficiency and cost-effective behavior from both divisions, as they are motivated to keep costs low and quality high in order to remain competitive in the external market. Variable cost-based transfer prices can encourage suboptimal behavior, as the selling division may set a price that exceeds actual variable costs in order to increase profit, while the buying division may refuse to buy the product at that price. Full cost-based transfer prices generally do not consider external market conditions, and the negotiated transfer prices may result in one division taking advantage of the other.

Which of the Following Transfer Prices Always Results in Both