Which transfer-pricing method preserves subunit autonomy when markets are competitive?
A)Cost-based.
B)Negotiated.
C)Market-based.
D)Minimum-based.
E)Maximum-based.

Question

Quizplus · Accepted Answer

Market-based transfer pricing uses external market prices as a benchmark or reference point to determine the price of intercompany transactions. This method preserves subunit autonomy because it allows each subunit to sell and purchase goods or services at the prevailing market prices. In a competitive market, prices are determined by the supply and demand forces, and subunits have to compete with other companies in the market. Therefore, market-based transfer pricing ensures that subunits are motivated to make efficient decisions that will benefit the entire organization. Additionally, this method is less susceptible to manipulation because it relies on objective and observable market data rather than subjective managerial discretion or internal cost structures.

Which Transfer-Pricing Method Preserves Subunit Autonomy When Markets Are Competitive