In each of the following mutually exclusive scenarios, please briefly explain, the impact (not necessarily monetary impact, but behavioral as well) of the transfer pricing arrangement on the company as a whole and each of its affected divisions. NO CALCULATIONS REQUIRED
(a) A per-unit transfer price from the Electronics Division to the Entertainment Division at full cost of Rs.915,
(b) Entertainment Division is able to purchase a large quantity of electronic controllers from an outside source at Rs.870/unit. The Electronics Division, having excess capacity, agrees to lower its transfer price to Rs.870/unit.
(c) Plastics Division has excess capacity and it has negotiated a transfer price of Rs.560 per plastic component with the Entertainment Division.

Answer rating: 100% (QA)

1aSince the transfer price is of the full cost The electronics division is recovering its full cost ... View the full answer