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:

External Equity

Refers to an organization’s compensation strategy being competitive with what other employers offer for similar jobs in the market.

Wage Curve

A graphical representation showing the relationship between the wage rate and the level of unemployment in an economy.

Relative Worth

The perceived value or importance of something in comparison to other items or factors.

Wage Rates

The fixed amount of compensation paid to an employee per unit of time, often per hour or day.