(Appendix 12A)One disadvantage of using the actual cost of a product as the transfer price is that it does not provide a strong incentive for the producing division to control its costs.

Question

Quizplus · Accepted Answer

Using actual cost as a transfer price can lead to inefficiencies because the producing division may not be motivated to minimize costs, knowing that all costs will be covered by the receiving division.

(Appendix 12A)One Disadvantage of Using the Actual Cost of a Product