Management and Organizational Studies 3199Y Lecture Notes - Lecture 11: Contribution Margin, Transfer Pricing, Quality Costs

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3199Y
• Professor: hawn

Document Summary

Problem 11a-9: transfer pricing: from the standpoint of the selling division, division a: Transfer price ( - ) +[( - ) 10,000]/10,000. But, from the standpoint of the buying division, division b: Transfer price cost of buying from outside supplier = . Division b won"t pay more than and division a will not accept less than , so no deal is possible. Transfer price ( - ) +[( - ) 70,000]/70,000. Transfer price cost of buying from outside supplier = . In this instance, an agreement is possible within the range: Even though both managers would be better off with any transfer price within this range, they may disagree about the exact amount of the transfer price. It would not be surprising to hear the buying division arguing strenuously for while the sell- ing division argues just as strongly for . The loss in potential profits to the company as a whole will be: