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:

Standard Deviation

A measure of the dispersion or variability of a set of data points from their mean, used in statistics to quantify the amount of variation or dispersion of a dataset.

Total Risk

The complete spectrum of all types of risk that an investment or project might face, including both systematic and unsystematic risks.

Market Risk Premium

The extra return over the risk-free rate that investors demand for choosing to invest in the stock market over a risk-free asset.

Risk-Free Rate

A speculated return on an investment that is considered to have no risk of losing money, usually indicated by the performance of government securities.