A Primary Characteristic of a Negotiated Transfer Price Is That

question 28

Multiple Choice

A primary characteristic of a negotiated transfer price is that it:

• A) Takes away the ultimate responsibility of the resulting transfer price from the two parties.
• B) Decreases sub-unit (i.e., divisional) autonomy.
• C) Can be costly and time-consuming to implement.
• D) Generally results in transferring more than the optimum number of units between the buying and selling divisions of the organization.
• E) Provides performance indicators that are independent of the negotiating skills of divisional managers.

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Definitions:

Raw Materials

Basic substances in their natural, modified, or semi-processed state used as inputs to a manufacturing process for conversion into finished goods.

Journal Entries

Records of financial transactions in the accounting system, indicating the accounts affected and the debit and credit amounts.

Indirect Materials

Materials used in the production process that cannot be easily traced to specific products, such as lubricants and cleaning supplies.

Direct Materials

Raw materials that are directly traceable to the production of specific goods or services.