Setting transfer prices can be especially problematic when
A) Managers are evaluated based on non-financial factors
B) Compensation is tied to the financial performance of responsibility centers
C) Centralized decision making is the organizational norm
D) Compensation is tied to the financial performance of the organization as a whole

Question

Quizplus · Accepted Answer

When compensation is tied to the financial performance of responsibility centers, managers may manipulate transfer prices to benefit their own center's performance, leading to conflicts and suboptimal decisions for the organization as a whole.

Setting Transfer Prices Can Be Especially Problematic When