The most valid reason for using something other than a full-cost-based transfer price between units of a company is because a full-cost price
A)is typically more costly to implement.
B)does not ensure the control of costs of a supplying unit.
C)is not available unless market-based prices are available.
D)does not reflect the excess capacity of the supplying unit.

Question

Quizplus · Accepted Answer

A full-cost-based transfer price includes all costs incurred by the supplying unit, including overhead costs. However, this can result in the supplying unit having limited control over their costs as they are being charged for all costs, regardless of whether they have control over them. This can lead to inefficiencies and higher costs for the company overall. Therefore, using a different transfer pricing method that allows for more targeted cost control, such as a market-based price or a negotiated price, may be more beneficial.

The Most Valid Reason for Using Something Other Than a Full-Cost-Based