The biggest problem with cost-based transfer prices is:
A) The fact that their use may result in sub-optimal decisions from the standpoint of the organization as a whole.
B) Too much negotiation is involved in determining the transfer price.
C) Data unavailability.
D) They are difficult to put into place.
E) They may lead to goal congruence within the firm.

Question

Quizplus · Accepted Answer

The biggest problem with cost-based transfer prices is that they may lead to sub-optimal decisions from the standpoint of the organization as a whole. This is because cost-based transfer prices do not take into account market conditions and may not reflect the true value of the goods or services being transferred. As a result, managers may make decisions that benefit their own departments or divisions rather than the organization as a whole.

The Biggest Problem with Cost-Based Transfer Prices Is