Division a Transfers a Profitable Subassembly to Division B, Where

question 24

Multiple Choice

Division A transfers a profitable subassembly to Division B, where it is assembled into a final product. A is located in a European country that has a high tax rate; B is located in an Asian country that has a low tax rate. Ideally, (1) what type of before-tax income should each division report from the transfer and (2) what type of transfer price should Division A set for the subassembly? $\begin{array} { | l | l | l | l | l | l | } \hline &\text { Division A } &&\text { Division B }&&\text { Transfer Price Set } \\& \text { Income }&&\text { Income }&&\text { by A }\\\hline 1 & \text { Low } & & \text { Low } & & \text { Low } \\\hline 2 & \text { Low } & & \text { High } & & \text { Low } \\\hline 3 & \text { Low } & & \text { High } & & \text { High } \\\hline 4 & \text { High } & & \text { Low } & & \text { High } \\\hline 5 & \text { High } & & \text { High } & & \text { Low } \\\hline\end{array}$

• A)1
• B)2
• C)3
• D)4
• E)5

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Definitions:

Foreperson

The leader or head of a jury, appointed to speak or act on behalf of the jury, including delivering the verdict.

Jury

A group of people sworn to render a verdict or decision in a legal case based on evidence presented to them in court.

Superordinate Goal

In intergroup conflict, an objective held in common by all conflicting groups that cannot be achieved by any one group without the supportive efforts of the others.

Ultimate Attribution Error

A perceptual bias occurring in intergroup relations. Negative behaviors by out-group members are attributed to stable, internal factors such as undesirable personal traits or dispositions, but positive behaviors by out-group members are attributed to unstable, external factors such as situational pressures or luck. As a result, in-group observers will blame the out-group for negative outcomes but will not give it credit for positive outcomes.