If there is a competitive market for the product or service being transferred internally, using the cost-based price as a transfer price will generally lead to the desired goal congruence and managerial effort.

Question

Quizplus · Accepted Answer

Using a cost-based transfer price may not account for supply and demand in a competitive market, leading to potential inefficiencies and conflicts between departments. In a competitive market, a market-based transfer price may be more appropriate to achieve goal congruence and encourage managerial effort.

If There Is a Competitive Market for the Product or Service