An advantage of absorption cost transfer pricing arises from the fact that:
A) This method is not as easy to implement as other methods.
B) This method encourages the selling division to operate efficiently.
C) This method allows the selling division to make a contribution toward covering long run fixed costs.
D) This method keeps the purchasing division content.

Question

Quizplus · Accepted Answer

A full absorption cost transfer price covers the products variable cost and contributes to the recovery of total fixed costs. If a segment has excess capacity, then selling at absorption cost will increase its income.

An Advantage of Absorption Cost Transfer Pricing Arises from the Fact