Which of the following is an advantage of using cost-based transfer prices? Multiple Choice Such prices are an objective measure and easy to compute. Such prices motivate the buying division to control cost.

Which of the following is an advantage of using cost-based transfer prices? Multiple Choice Such prices are an objective measure and easy to compute. Such prices motivate the buying division to control cost.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 18MC: A transfer pricing arrangement that uses the price that would be charged to an external customer is...

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Question

Which of the following is an advantage of using cost-based transfer prices?
Multiple Choice
Such prices are an objective measure and easy to compute.
Such prices motivate the buying division to control cost.
Such prices provide a sense of fairness.
Such prices will usually exceed the market-based or negotiated transfer prices.

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Discuss the advantages and disadvantages of a cost-based transfer pricing approach.
A transfer pricing arrangement that uses the price that would be charged to an external customer is a______. A. market-based approach B. negotiated approach C. cost approach D. decentralized approach
A transfer pricing structure that considers the opportunity costs of selling to internal rather than external customers uses_______. A. the cost approach B. the general transfer pricing approach C. the market-based approach D. the opportunity cost approach
Why would standard cost be a more appropriate transfer cost between cost centers than actual cost?
“Transfer pricing is confined to profit centers.” Do you agree? Explain.
When is it more appropriate to use market-based transfer price rather than cost-based transfer price?
What is one potential limitation of full-cost-based transfer prices?
This transfer prices basis is considered to be the most inferior one a. variable cost transfer pice b. full cost transfer price c. negotiatied transfer price d. external market transfer price e. dual transfer price
What is Transfer Pricing? What are the approaches in determining transfer prices? In your own idea, identify some best practices in transfer pricing.
Select Among the choices, this transfer prices basis is considered as the most inferior one: a. variable cost transfer pice b. full cost transfer price c. negotiatied transfer price d. external market transfer price e. dual transfer price
Why is there often a conflict between the performance evaluation and cost-minimization objectives of transfer pricing?
ANSWER TRUE OR FALSE Transfer prices can be used to promote goal congruence among operating segments of an organization. In computing a transfer price, the maximum price should be no higher than the lowest market price at which the buying segment can obtain the good or service externally. In computing a transfer price, the maximum price should be no higher than the highest market price at which the buying segment can obtain the good or service externally. In computing a transfer price, the minimum price should be no lower than the incremental costs associated with the goods plus the opportunity cost of the facilities used. One of the main factors to consider when using a cost-based transfer price is whether to use actual or standard costs. When using a negotiated transfer price, a decision must be made which market price to use. When using a market-based transfer price, a decision must be made which market price to use. When using a market-based transfer…