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An organization has a decentralized structure in which division A supplies division B with an intermediate product for which there is no external market. Division B carries out further processing and then sells the final product on the external market. Due to organizational policy the current transfer pricing basis is variable cost.
The manager of division A has stated, "The current transfer price is unfair because it does not enable us to recoup our costs".
The manager of division B has stated, "The current transfer pricing system enables us to quote competitive prices for the finished product".
The Chief Executive of the organization is considering imposing a transfer pricing policy that uses dual pricing.
Dual pricing would:
Suggested Answer: C
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25 comments · newest first
AN
Andrew
11 months ago
But what about the impact on division B's pricing strategy?
RO
Roxane
11 months ago
I think both managers would benefit from dual pricing!
JU
Justa
11 months ago
Not sure if dual pricing will really solve the issue.
TA
Tammara
12 months ago
Totally agree, division A needs better support!
MO
Mozelle
12 months ago
Dual pricing could help division A recover costs.
RA
Raelene
1 year ago
From what I recall, dual pricing could lead to more autonomy for divisions, but I’m not certain if that’s the main benefit.
AN
Anglea
1 year ago
I’m a bit confused about how dual pricing works in practice; does it really involve extra payments to division A?
CH
Chantay
1 year ago
I practiced a similar question where dual pricing was discussed, and I think it might actually benefit both divisions if managed well.
CL
Clay
1 year ago
I remember studying that dual pricing can help address fairness issues, so I think division A would like it, but I'm not sure about division B's reaction.
DA
Dawne
1 year ago
I've got a good handle on transfer pricing concepts, so I think I can tackle this question. The key will be identifying which option best aligns with the stated concerns of the managers.
JO
Jolanda
1 year ago
Okay, let me think this through. The key seems to be understanding how dual pricing would impact the divisions differently. I'll need to analyze the pros and cons for each manager to determine the best answer.
TI
Titus
1 year ago
This seems like a tricky question about transfer pricing and how it impacts the different divisions. I'll need to carefully consider the perspectives of the managers and how dual pricing might affect them.
PA
Pamella
1 year ago
Hmm, this is a complex issue with a lot of moving parts. I'll need to really focus on the details provided and think through the implications of dual pricing for the organization as a whole.
JA
Jaleesa
1 year ago
C is an interesting choice, but I don't think increasing divisional autonomy is the main goal here. The focus seems to be on finding a fair transfer pricing system that works for both divisions.
DO
Doug
1 year ago
I agree, the main goal should be finding a fair transfer pricing system that benefits both divisions.
CH
Chantay
1 year ago
D) involve a lump sum payment to division A in addition to the payment of the variable cost per unit.
SH
Shaquana
1 year ago
A) be welcomed by the manager of division A but the manager of division B would resist it.
LE
Leontine
2 years ago
Haha, 'decentralized structure' and 'dual pricing' - sounds like a recipe for some serious corporate drama! I wonder if the CEO is looking to create more chaos or solve problems.
SA
Sanda
1 year ago
Division B manager: I think dual pricing could work for us too, we can still quote competitive prices.
EL
Elenor
1 year ago
Division A manager: Dual pricing would be welcomed by me, it's unfair to not recoup our costs.
CA
Catina
2 years ago
B is an interesting option, but I'm not sure both managers would welcome dual pricing. The manager of division A seems unhappy with the current system, so I suspect they would prefer D.
LA
Latonia
2 years ago
I think the correct answer is D. Dual pricing would involve a lump sum payment to division A in addition to the variable cost per unit. This seems like the best way to address the concerns of both division managers.
JU
Judy
2 years ago
But wouldn't dual pricing reduce divisional autonomy?
CA
Carlee
2 years ago
I agree with Peggie. Division A should be able to recoup their costs.
PE
Peggie
2 years ago
I think dual pricing would be fair for both divisions.