Standard costs rather than actual costs should be used in transfer-pricing methods because:
A) financial accounting rules (GAAP) require the use of standard costs.
B) tax rules require the use of standard costs.
C) standard costs are more readily available than actual costs.
D) standard costs facilitate a professionally negotiated, amicable settlement between the buying and selling divisions.
E) inefficient producing divisions could pass on their inefficiencies to buying divisions in the transfer price.

Question

Quizplus · Accepted Answer

Standard costs help prevent inefficiencies from being passed on to buying divisions, as they reflect expected costs rather than actual, potentially inflated costs.

Standard Costs Rather Than Actual Costs Should Be Used in Transfer-Pricing