Transfer prices based on actual costs of the selling division as opposed to standard costs incurred by that division:
A) Are preferred by the purchasing division.
B) May fail to provide the selling division with an incentive to control costs.
C) Often encourage the selling division to control costs.
D) Are required by international financial reporting standards.
E) Often encourage the purchasing division to control costs.

Question

Quizplus · Accepted Answer

Transfer prices based on actual costs of the selling division may fail to provide an incentive for the selling division to control costs since they will be reimbursed for the actual costs incurred. This can lead to inefficiencies and higher costs for the overall organization.

Transfer Prices Based on Actual Costs of the Selling Division