1 - Setting transfer prices can be especially problematic when:

a) Managers are evaluated based on non-financial factors

b) Compensation is tied to the financial performance of responsibility centres

c) Centralized decision-making is the organizational norm

d) Compensation is tied to the financial performance of the organization as a whole

2. A transfer pricing policy based on market price:

a) Maximizes total organizational profit

b) Is best because the market price is always objective and easily obtainable

c) May result in suboptimal decision-making for the company as a whole

d) Is the only alternative accepted by the Canada Revenue Agency