A Transfer Price Based on the Full Cost Plus a Markup

question 134

Multiple Choice

A transfer price based on the full cost plus a markup may lead to suboptimal decisions because ________.

• A) it leads the buying division to regard the fixed costs and the markup of the selling division as a variable cost
• B) it leads the buying division to regard the variable costs and the markup of the selling division as a fixed cost
• C) it leads the buying division to regard the fixed costs and the markup of the selling division as total costs
• D) it leads the buying division to regard the variable costs and the markup of the selling division as total costs

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Definitions:

Billable Hours

The amount of time a professional, such as a lawyer, charges their client for, based on the hours they work on a specific case or project.

Fee Splitting

Fee splitting refers to the practice of sharing fees among different professionals, such as lawyers or doctors, which is often regulated due to ethical concerns.

Nonbillable

Nonbillable refers to time or activities related to a job or profession that cannot be charged to a client as part of services rendered.

Administrative Work

Tasks related to the management and operation of an organization, including paperwork, scheduling, and organizational duties.