Both the market-based transfer pricing approach and cost-based methods are useful for evaluating subunit performance.

Question

Quizplus · Accepted Answer

When competitive markets exist for the intermediate product, then market-based transfer pricing is useful for subunit performance but with cost-based transfer pricing, subunit evaluation is more difficult unless the transfer price exceeds the full cost and even then, it is somewhat arbitrary.

Both the Market-Based Transfer Pricing Approach and Cost-Based Methods Are