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IMANET Exam CMA Topic 1 Question 37 Discussion

Actual exam question for IMANET's Certified Management Accountant exam
Question #: 37
Topic #: 1
[All Certified Management Accountant Questions]

A limitation of transfer prices based on actual cost is that they

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Suggested Answer: B

The optimal transfer price of a selling division should be set at a point that will have the most desirable economic effect on the firm as a whole while at the same time continuing to motivate the management of every division to perform efficiently Setting the transfer price based on actual costs rather than standard costs would give the selling division little incentive to control costs.

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