If using actual costs for cost-based transfer pricing, the supplying division lacks incentive to control its costs.

Question

Quizplus · Accepted Answer

When using actual costs for cost-based transfer pricing, the supplying division will be reimbursed for its actual costs, regardless of whether they are efficiently managed or not. Therefore, the supplying division may not have an strong incentive to control its costs since it will be fully reimbursed regardless.

If Using Actual Costs for Cost-Based Transfer Pricing, the Supplying