When a Company Uses Activity-Based Transfer Prices

question 53

Multiple Choice

When a company uses activity-based transfer prices:

• A) The internal buyer is motivated to overstate the number of units to buy internally
• B) The internal buyer is motivated to understate the number of units to buy internally
• C) Capacity is usually reserved for products or services that are transferred internally
• D) Batch-level costs are excluded from the computation

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Definitions:

Marginal Benefits

The additional satisfaction or utility that a person gains from consuming an additional unit of a good or service.

Marginal Costs

The cost added by producing one additional unit of a product or service.

Producing

The process of creating goods or services to be offered to the market.

Marginal Benefit

The heightened satisfaction or utility one gets from acquiring one more unit of a product or service.