Which of the following transfer-pricing methods can lead to dysfunctional decision-making behavior by managers?
A) Variable cost.
B) Full cost.
C) External market price.
D) A professionally negotiated, amicable settlement between the buying and selling divisions.
E) None of the other answers are correct.

Question

Quizplus · Accepted Answer

The full cost transfer-pricing method can lead to dysfunctional decision-making behavior because it may encourage managers to continue producing and transferring products even if the external market price is lower than the full cost, resulting in a loss for the selling division. This can lead to suboptimal decision-making behavior and inefficiencies.

Which of the Following Transfer-Pricing Methods Can Lead to Dysfunctional