Question: Suppose that Division A sells an intermediate product to Division
Suppose that Division A sells an intermediate product to Division B. Choose one of the ways of determining transfer prices described in the chapter (not setting transfer prices equal to the selling firm’s opportunity costs) and show how Division Manager A can use this mechanism to justify a high transfer price, while Division Manager B can use this mechanism to justify a lower transfer price. Repeat this exercise with another approach to setting transfer prices described in the chapter.
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