Full-Cost Transfer-Pricing Creates an Incentive For

question 7

Multiple Choice

Full-cost transfer-pricing creates an incentive for:

• A)distribution to be inefficient.
• B)distribution to be over-efficient.
• C)manufacturing to be over-efficient.
• D)manufacturing to be less efficient.

Identify and describe the difference between plantwide overhead rate, departmental overhead rate, and activity-based costing (ABC) methods.

Recognize the advantages and disadvantages of using a plantwide overhead rate for overhead cost allocation.

Understand the concept of cost pools and how they are used in overhead cost allocation.

Acknowledge the influence of cost assignments on management's pricing and product decisions.

---

Definitions:

Monopolist

An entity or individual that holds a monopoly, having exclusive control over the supply of a particular good or service in the market.

Marginal Cost

The uplift in collective cost emerging from the making of an additional unit of a good or service.

Producer Surplus

Producer surplus is the difference between what producers are willing to accept for a good or service versus what they actually receive, reflecting their economic benefit.

Monopolist

A single seller in a market with no close substitutes for the product or service they offer, leading to significant control over prices and output.