Which of the following is a limitation of cost-based transfer pricing?

Question

Quizplus · Accepted Answer

Determining which measure of cost to use can be a challenge in cost-based transfer pricing, as there can be different approaches to calculating costs. In addition, using cost as the sole basis for determining transfer prices may not provide sufficient incentive for a selling division to control its costs, as it is not necessarily tied to the revenue it generates. Finally, inefficiencies in one unit may be transferred to another unit, leading to suboptimal outcomes for the entire organization. Therefore, all of these factors are limitations of cost-based transfer pricing.

Which of the Following Is a Limitation of Cost-Based Transfer