A transfer pricing policy based on market price:
A) Is best because the market price is always objective and easily obtainable.
B) May result in suboptimal decision making for the company as a whole.
C) Maximises total organisational profit.
D) Is the only alternative accepted by the Australian Taxation Office.

Question

Quizplus · Accepted Answer

Market-based transfer pricing can lead to suboptimal decisions for the company as a whole because it might not reflect the actual cost or value to the company of the goods or services being transferred internally. This can lead to divisions making decisions that are beneficial for their own profits but detrimental to the company's overall profitability.

A Transfer Pricing Policy Based on Market Price