If there is a competitive market for the product being transferred internally,using the ________ as the transfer price will lead to ________.
A) full cost; goal congruence
B) variable cost; goal congruence
C) full cost plus profit; goal congruence
D) market price; goal congruence

Question

Quizplus · Accepted Answer

Using market price as the transfer price in a competitive market ensures that the transfer price reflects the fair market value of the product and promotes goal congruence by encouraging the selling division to compete fairly in the market. Using full cost or full cost plus profit as the transfer price may result in inefficient allocation of resources and may not reflect the actual market value of the product. Using variable cost as the transfer price may result in the selling division not covering fixed costs and therefore may not be optimal for the company as a whole.

If There Is a Competitive Market for the Product Being