Use the information below to answer the following question(s).Crush Company makes internal transfers at 180% of full cost.The Soda Refining division purchases 30,000 containers of carbonated water per day, on average, from a local supplier, who delivers the water for $30 per container via an external shipper.In order to reduce costs the company located an independent producer in Manitoba who is willing to sell 30,000 containers at $20 each, delivered to Crush Company's shipping division in Manitoba.The company's Shipping Division in Manitoba can ship the 30,000 containers at a variable cost of $2.50 per container and a full cost, based on practical capacity, of $4.00 per container.When the company's Manitoba shipping division ships for external customers is charges $6.00 per container.
-One reason companies use full-cost transfer pricing is that it provides relevant costs for
A)long-run decisions even though poor short-run decisions may result.
B)long-run decisions and for short-run decisions.
C)short-run decisions but not for long-run decisions.
D)short-run decisions at the expense of the company.
E)long-run decisions and for employee staffing decisions.

Question

Quizplus · Accepted Answer

Full-cost transfer pricing includes all relevant costs, including fixed costs, which are important for making long-run decisions. However, in the short run, it may not be the most efficient pricing method since it does not allow for flexibility and may result in poor short-term decisions.

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