Full-cost-based transfer prices lead the buying division to view costs that are non-unit-level costs for the company as a whole as unit-level costs to the buying division which can lead to faulty decision making.

Question

Quizplus · Accepted Answer

Full-cost-based transfer prices include both variable and fixed costs, causing the buying division to treat all these costs as if they are variable with respect to its own operations. This can distort decision-making by not accurately reflecting the true incremental costs of internal transactions.

Full-Cost-Based Transfer Prices Lead the Buying Division to View Costs