Which of the Following Is a Key Problem with the Use

question 68

Multiple Choice

Which of the following is a key problem with the use of market-based transfer prices?

• A) It does not take into account the saving in cost (e.g. selling expenses, collection expenses) because of transferring internally.
• B) It leads to decision making that is suboptimal for the firm.
• C) It does not promote divisional autonomy.
• D) It does not show the contribution of each division to overall profit.

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Definitions:

Market/Book Ratio

A financial ratio comparing a company's current market price to its book value, used to evaluate whether a stock is over or undervalued.

Average Collection Period

The average number of days it takes for a business to receive payments from its customers for invoices.

Accrued Salaries

Wages that have been earned by employees but have not yet been paid out.

Fixed Assets

Long-term tangible assets that are used in the operations of a business and are not intended to be sold within a year.