Which of the Following Is a Disadvantage of Using Negotiated

question 99

Multiple Choice

Which of the following is a disadvantage of using negotiated transfer price?

• A) It requires each division manager to put forth effort to increase division operating income.
• B) Negotiated transfer prices take away the divisional autonomy as prices depend on bargaining strength.
• C) Negotiations usually require much time and energy thereby consuming precious managerial time.
• D) It may lead to divisional enmity because negotiation process may cause frictions among departments.

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Definitions:

Sunk Costs

Sunk costs refer to money that has already been spent and cannot be recovered, a concept that emphasizes that such costs should not affect future business decisions.

Federal Income Tax Ramifications

The effects or consequences that adjustments in the federal income tax laws or rates have on an individual or business's financial situation.

Capital Rationing

The process of limiting the amount of capital available for investment in order to ensure optimal returns on investment projects.

Capital Investment Analysis

The process of reviewing and evaluating potential purchases or investments in capital assets to determine their financial viability and impact on the business.