Put simply, transfer pricing is a management tool for assigning a "price" to internally transferred goods (or services) in order to simulate the marketplace, thus encouraging managers to make decisions that are in the best interest of the:
A) Operating managers.
B) Producing (i.e., selling) unit within the firm.
C) Firm as a whole.
D) Manager of the buying (i.e., purchasing) unit.
E) Operating units in the short run, and the firm in the long-run.

Question

Quizplus · Accepted Answer

Transfer pricing is used to encourage managers to make decisions that will benefit the entire firm, rather than just their individual operating units. By simulating market prices, managers are incentivized to make decisions that are in the best interests of the firm as a whole.

Put Simply, Transfer Pricing Is a Management Tool for Assigning