A transfer price based on the full cost plus a markup may lead to suboptimal decisions because ________.
A) it leads the buying division to regard the fixed costs and the markup of the selling division as a variable cost
B) it leads the buying division to regard the variable costs and the markup of the selling division as a fixed cost
C) it leads the buying division to regard the fixed costs and the markup of the selling division as total costs
D) it leads the buying division to regard the variable costs and the markup of the selling division as total costs

Question

Quizplus · Accepted Answer

A transfer price based on full cost plus a markup can cause the buying division to incorrectly treat the fixed costs and markup from the selling division as variable costs, potentially leading to decisions that do not maximize the overall company's profitability.

A Transfer Price Based on the Full Cost Plus a Markup