Chapter 10, Problem 4CMA

Morrison’s Plastics Division, a profit center, sells its products to external customers as well as to other internal profit centers. Which one of the following circumstances would justify the Plastics Division selling a product internally to another profit center at a price that is below the market-based transfer price?

a. The buying unit has excess capacity.

b. The selling unit is operating at full capacity.

c. Routine sales commissions and collection costs would be avoided.

d. The profit centers’ managers are evaluated on the basis of unit operating income.