The Most Valid Reason for Using Something Other Than a Full-Cost-Based

question 152

Multiple Choice

The most valid reason for using something other than a full-cost-based transfer price between units of a company is because a full-cost price

• A)is typically more costly to implement.
• B)does not ensure the control of costs of a supplying unit.
• C)is not available unless market-based prices are available.
• D)does not reflect the excess capacity of the supplying unit.

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Definitions:

Floatation Costs

The total costs associated with a company issuing new stocks or bonds, including underwriting, legal, registration, and other expenses.

Dividend Irrelevance Theory

A theory proposed by Modigliani and Miller that suggests dividend policies do not affect a company’s capital structure or stock price in a perfect market.

Dividend Policy

A company's approach to distributing profits back to its shareholders, whether through cash dividends or share repurchases.

Dividend Irrelevance Theory

A theory suggesting that the dividend policy of a company is irrelevant to its value or the cost of capital and investment decisions.