If actual costs are used for transfer pricing by a selling division,the selling division has little incentive to control costs.

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Quizplus · Accepted Answer

If actual costs are used for transfer pricing, the selling division may not have an incentive to control costs as they can simply pass the costs onto the buying division. This can lead to inefficiencies and higher costs for the overall company. In contrast, if a negotiated transfer price or a cost-plus pricing method is used, the selling division has an incentive to control costs in order to maximize profits.

If Actual Costs Are Used for Transfer Pricing by a Selling