MC transfer prices creates incentives for manufacturing to distort MC:
A) upwards and then downwards.
B) downwards and then upwards.
C) downwards.
D) upwards.

Question

Quizplus · Accepted Answer

MC transfer prices create incentives for manufacturing to distort their costs upwards in order to maximize their own profits. By increasing their costs, they can receive a larger transfer price from the selling division. This may result in inflated costs for the selling division and reduced profits overall.

MC Transfer Prices Creates Incentives for Manufacturing to Distort MC