A Limitation of Transfer Prices Based on Actual Cost Is

question 84

Multiple Choice

A limitation of transfer prices based on actual cost is that they: (CIA adapted)

• A) charge inefficiencies to the department that is transferring the goods.
• B) charge inefficiencies to the department that is receiving the goods.
• C) must be adjusted by some markup.
• D) lack clarity and administrative convenience.

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Definitions:

General Journal

A fundamental accounting document where all kinds of financial transactions are initially recorded before they are transferred to specific accounts in the ledger.

Special Journal

A type of accounting journal designed for recording a specific type of transaction in a more efficient manner.

Sales Journal

A specialized accounting journal that records all credit sales transactions of a business.

Subsidiary Ledger

A detailed ledger used to track individual transactions related to a specific account, complementing the general ledger.