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Unformatted text preview: 22-8Transfer prices should have the following properties. They should1. promote goal congruence,2.be useful for evaluating subunit performance,3. motivate management effort, and4.preserve a high level of subunit autonomy in decision making.22.9No, the chapter illustration demonstrates how division operating incomes differ dramatically under the variable costs, full costs, and market price methods.22.10Transferring products or services at market prices generally leads to optimal decisions when (a) the market for the intermediate product market is perfectly competitive, (b) interdependencies of subunits are minimal, and (c) there are no additional costs or benefits to the company as a whole from buying or selling in the external market instead of transacting internally.22-11One potential limitation of full-cost-based transfer prices is that they can lead to suboptimal decisions for the company as a whole. An example of a conflict between divisional action and overall company profitability resulting from an...
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