A benefit of using a market-based transfer price is that the ________.
A) profits of the transferring division are sacrificed for the overall good of the corporation
B) profits of the division receiving the products are sacrificed for the overall good of the corporation
C) economic viability and profitability of each division can be evaluated individually
D) transferring division can be assured of recovering its full costs in all scenarios

Question

Quizplus · Accepted Answer

Market-based transfer prices allow each division to operate as if it were an independent business, which helps evaluate their economic viability and profitability individually. This promotes healthy competition within the organization and encourages each division to operate efficiently. Option A and B are incorrect because the purpose of a market-based transfer price is not to sacrifice the profits of any division for the greater good of the corporation. Option D is incorrect because a market-based transfer price is not a guarantee that the transferring division will recover its full costs in all scenarios.

A Benefit of Using a Market-Based Transfer Price Is That