With transfer pricing, there may be conflicts between divisions. The best way to solve this is for divisions to base their pricing of intermediate products on average costs.

Question

Quizplus · Accepted Answer

Transfer pricing based solely on average costs may not reflect the true economic value or opportunity cost of the intermediate products, leading to potential inefficiencies and conflicts. A more comprehensive approach considering market prices, negotiated prices, or cost-plus strategies might better align divisional interests.

With Transfer Pricing, There May Be Conflicts Between Divisions