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Answer (C) is correct . The use of full (absorption) cost ensures that the selling division will not incur a loss and provides more incentive to the buying division to buy internally than does use of market price. However, there is no motivation for the seller to control production cost since all costs can be passed along to the buying division.

Answer (A) is incorrect because Evaluating the seller is difficult if it can pass along all costs to the buyer.
Answer (B) is incorrect because Transfers at full cost do not allow for a seller’s profit.
Answer (D) is incorrect because A full-cost transfer is favorable to the buyer. It is lower than the market price.