If a company allows division managers to negotiate a cost-based transfer price,it is better to use actual costs rather than standard costs.Otherwise,the selling division has no motivation to control costs.

Question

Quizplus · Accepted Answer

Using standard costs for transfer pricing encourages cost control because it sets a benchmark for performance. If actual costs are used, the selling division might not be motivated to control costs, as any inefficiency could be passed on through higher transfer prices.

If a Company Allows Division Managers to Negotiate a Cost-Based