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CIMAPRO19-P02-1 Exam - Topic 3 Question 99 Discussion

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:
C) increase divisional autonomy.
A) be welcomed by the manager of division A but the manager of division B would resist it.
B) be welcomed by both divisional managers.
D) involve a lump sum payment to division A in addition to the payment of the variable cost per unit.

CIMAPRO19-P02-1 Exam - Topic 3 Question 99 Discussion

Actual exam question for CIMA's CIMAPRO19-P02-1 exam
Question #: 99
Topic #: 3
[All CIMAPRO19-P02-1 Questions]

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:

Show Suggested Answer Hide Answer
Suggested Answer: C

by Lashaunda at Sep 19, 2024, 03:58 AM

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Andrew
8 months ago
But what about the impact on division B's pricing strategy?
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Roxane
8 months ago
I think both managers would benefit from dual pricing!
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Justa
8 months ago
Not sure if dual pricing will really solve the issue.
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Tammara
8 months ago
Totally agree, division A needs better support!
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Mozelle
9 months ago
Dual pricing could help division A recover costs.
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Raelene
9 months 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.
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Anglea
9 months ago
I’m a bit confused about how dual pricing works in practice; does it really involve extra payments to division A?
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Chantay
9 months ago
I practiced a similar question where dual pricing was discussed, and I think it might actually benefit both divisions if managed well.
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Clay
9 months 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.
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Dawne
9 months 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.
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Jolanda
9 months 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.
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Titus
9 months 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.
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Pamella
10 months 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.
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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.
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Doug
1 year ago
I agree, the main goal should be finding a fair transfer pricing system that benefits both divisions.
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Chantay
1 year ago
D) involve a lump sum payment to division A in addition to the payment of the variable cost per unit.
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Shaquana
1 year ago
A) be welcomed by the manager of division A but the manager of division B would resist it.
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Leontine
1 year 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.
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Sanda
1 year ago
Division B manager: I think dual pricing could work for us too, we can still quote competitive prices.
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Elenor
1 year ago
Division A manager: Dual pricing would be welcomed by me, it's unfair to not recoup our costs.
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Catina
1 year 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.
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Latonia
1 year 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.
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Judy
1 year ago
But wouldn't dual pricing reduce divisional autonomy?
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Carlee
1 year ago
I agree with Peggie. Division A should be able to recoup their costs.
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Peggie
1 year ago
I think dual pricing would be fair for both divisions.
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