The objective of a transfer pricing system should be

Question

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The objective of a transfer pricing system should be to maintain goal congruence between the divisions and the entire firm. This means that the transfer price should be set at a level that incentivizes the divisions to work together in a way that benefits the overall performance of the firm, rather than encouraging behaviors that benefit only one division at the expense of others or the firm as a whole. Maximizing or minimizing the transfer price could lead to suboptimal decisions and potentially harm the firm's performance.

The Objective of a Transfer Pricing System Should Be