Which of the Following Is a Disadvantage of Using a Negotiated

question 31

Multiple Choice

Which of the following is a disadvantage of using a negotiated transfer price instead of a cost-based transfer price?

• A) It reflects underlying opportunity costs associated with producing goods.
• B) It encourages managers to sell products for less than variable costs.
• C) It will allow one division to generate a large contribution margin and the other to generate no contribution margin.
• D) The transfer price may reflect negotiating skills of subunit managers.

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