Nussbaum Inc. is a chemical company that is comprised of five independent divisions, located in three different countries. Divisional managers are evaluated based on divisional profitability. Home office functions include human resources, accounting, and environmental management (EM). Projects of the EM group are solicited and paid for by the contracting operating divisions. Nussbaum’s transfer pricing policy requires EM to charge the operating divisions a market- based price for services.
a. Is the EM group centralized or decentralized?
b. What type of responsibility center is the EM group?
c. What potential problems exist from having the EM group charge a market-based transfer price for its services?