Need help with the answer of Pg 92 325 Hammer bpp revision kit

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November 2, 2020 at 5:58 am #593802
farhaanm
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In part C,
(c)
Discuss whether or not including fixed costs in a transfer price is a sensible policy.
One of the answer is
problem with this pricing strateqy is fixed costs are effectively treated as variable costs from the
The
Perspective of the stores, as thev are inluded within the variable buy-in price. This could lead to poor
decision making from a group perspective
Can you explain it to me I can’t understand?
November 2, 2020 at 9:12 am #593822
John Moffat
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If fixed costs are included (effectively absorption costing), then the more units that are produced and transferred then the more fixed costs are being included in total. However total fixed costs by definition will not change with the number of units produced.
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