Setting transfer prices can be especially problematic when
A) Managers are evaluated based on non-financial factors
B) Compensation is tied to the financial performance of responsibility centres
C) Centralised decision making is the organisational norm
D) Compensation is tied to the financial performance of the organisation as a whole

Question

Quizplus · Accepted Answer

When compensation is tied to the financial performance of responsibility centres, managers may manipulate transfer prices to benefit their own centre's performance, leading to suboptimal decisions for the organisation as a whole.

Setting Transfer Prices Can Be Especially Problematic When