A per-unit transfer price from the Video Cards Division to the Entertainment Division at full cost,$9.15,would
A)allow evaluation of both divisions on a competitive basis.
B)satisfy the Video Cards Division's profit desire by allowing recovery of opportunity costs.
C)provide no profit incentive for the Video Cards Division to control or reduce costs.
D)encourage the Entertainment Division to purchase video cards from an outside source.

Question

Quizplus · Accepted Answer

A per-unit transfer price at full cost does not provide any profit incentive for the transferring division to control or reduce costs. In this case, the Video Cards Division may not have any motivation to improve efficiency or reduce costs since they would be able to recover all costs through the transfer price. This could lead to higher prices for the Entertainment Division and could potentially encourage them to seek video cards from outside sources. A better option would be to use a transfer price that includes only variable costs, which would encourage both divisions to focus on efficiency and cost reduction.

A Per-Unit Transfer Price from the Video Cards Division to the Entertainment