Full-cost transfer prices will maximize overall corporate income when transferring products from divisions operating
A)in a low tax area to a high tax area.
B)in a high tax area to a low tax area.
C)between high tax areas.
D)between low tax areas.
E)in a high tax area to a tax exempt area.

Question

Quizplus · Accepted Answer

Full-cost transfer pricing involves transferring the entire cost of producing a product, including both variable and fixed costs, from one division to another. When transferring products from a division operating in a low tax area to a division in a high tax area, using full-cost transfer pricing will increase the cost of the product in the high tax area, which will reduce the taxable income of that division. At the same time, it will increase the taxable income of the low tax area division. Overall, the corporation's taxable income will be maximized because the tax savings from the low tax area division will offset the tax cost in the high tax area division.

Full-Cost Transfer Prices Will Maximize Overall Corporate Income When Transferring