Management's Challenge Is to Set Transfer Prices So That Both

question 39

Multiple Choice

Management's challenge is to set transfer prices so that both the buyer and seller have goal congruence with respect to the organization's goals.How is this accomplished?

• A)With no intervention from top management to set the transfer price for each transaction between divisions.
• B)With top management establishing transfer price policies that divisions follow.
• C)With division managers not engaging in negotiation to set transfer prices among themselves.
• D)All of the answers are correct.

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Definitions:

Growth Rate

The rate at which a company's earnings or capital is expected to grow, usually annually, influencing investment decisions.

Dividends

Monies disbursed by a business to its owners, often coming from the profit the company makes.

Costs

The monetary valuation of effort, material, resources, time, and opportunity foregone in production and delivery of a good or service.

Retention Ratio

The proportion of a company's net income that is retained rather than paid out as dividends, indicating reinvestment back into the company.