The Primary Limitation of a Full-Cost Based Transfer Pricing System

question 67

Multiple Choice

The primary limitation of a full-cost based transfer pricing system is that:

• A) The supplying and purchasing divisions are more likely to make decisions that are inconsistent with the goals of the organization as a whole.
• B) There will be little incentive on the part of the supplying manager to supply goods and services efficiently.
• C) Managers may spend too much time negotiating the transfer price.
• D) Managers may find that the transfer price is difficult to compute.
• E) Such transfer prices are not currently allowed for federal income tax purposes.

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Definitions:

Neutralize

To render something inactive by exerting a contrary force or influence, commonly utilized in the realms of chemistry and electricity.

Battery Posts

The positive and negative protruding terminals on a battery through which electrical power is provided to or received from a vehicle's or device's electrical system.

Baking Soda

A common household sodium bicarbonate powder used for baking, cleaning, and odor neutralizing.

Sectional Diameter

The diameter of a circular object or a section thereof, often used in the context of mechanical parts or engineering to describe specific measurements.