Question

An advantage of absorption cost transfer pricing arises from the fact that Select one: A. This method keeps the purchasing division content. B. This method encourages the selling division to operate efficiently. C. This method allows the selling division to make a contribution toward covering long run fixed costs. D. This method is not as easy to implement as other methods.

Answer 1

Answer:

This method encourages the selling division to operate efficiently.

Explanation:

Absorption cost transfer pricing is very essential to determine the right amount in which goods and services will be sold in the market. It involves setting a price for a particular product with inclusion of all its variable costs.

Absorption cost transfer pricing enables an organization to maximise profit this is because all the different cost incurred during production are added to the price of the product.