Setting Transfer Prices Can Be Especially Problematic When

question 60

Multiple Choice

Setting transfer prices can be especially problematic when

• A) Managers are evaluated based on non-financial factors
• B) Compensation is tied to the financial performance of responsibility centers
• C) Centralized decision making is the organizational norm
• D) Compensation is tied to the financial performance of the organization as a whole

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Definitions:

Return On Assets

A financial ratio indicating how profitable a company is relative to its total assets, measuring efficiency in using assets to generate earnings.

Earnings Before Interest And Taxes

A financial metric indicating the profitability of a business before accounting for interest and tax expenses.

Excess Capacity

The situation in which a facility or operation can produce more than is being demanded by its customers.

Distribution Sites

Locations where goods are stored and distributed to retailers or directly to customers.