All of the Following Are Correct Statements About the Cost-Based

question 49

Multiple Choice

All of the following are correct statements about the cost-based transfer price approach except that it

• A) can understate the actual contribution to profit by the selling division.
• B) can reduce a division manager's control over the division's performance.
• C) bases the transfer price on standard cost instead of actual cost.
• D) provides incentive for the selling division to control costs.

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Definitions:

Internal Accounting Records

A collection of documents and ledgers used by a business to track financial transactions, assets, liabilities, and equity.

Equity Method

An approach to account for equity investments by adjusting the investment's value to mirror changes in the investee's net assets.

Accumulated Depreciation

The total amount of depreciation that has been recorded up to a specific point in time, reflecting the wear and tear on tangible assets over their useful lives.

Noncontrolling Interest

The portion of equity (ownership) interest in a subsidiary not held by the parent company, represented in the consolidated financial statements of the parent company.