A Transfer Price Based on the Full Cost Plus a Markup

Multiple Choice

A transfer price based on the full cost plus a markup may lead to suboptimal decisions because ________.

A) it leads the buying division to regard the fixed costs and the markup of the selling division as a variable cost
B) it leads the buying division to regard the variable costs and the markup of the selling division as a fixed cost
C) it leads the buying division to regard the fixed costs and the markup of the selling division as total costs
D) it leads the buying division to regard the variable costs and the markup of the selling division as total costs