What should be the objective(s)of a firm's transfer pricing policy?
A)Ensure a secure source of inputs at the best price possible.
B)Promote goal congruence, while maintaining divisional autonomy so that accurate performance evaluation can be made.
C)Develop a cooperative relationship between divisions, while maintaining enough competitiveness to ensure the survival of the firm.
D)Develop a pricing system that facilitates good record keeping that is acceptable under GAAP.

Question

Quizplus · Accepted Answer

The objective(s) of a firm's transfer pricing policy should be to promote goal congruence while maintaining divisional autonomy so that accurate performance evaluation can be made. This objective ensures that each division is incentivized to optimize its performance, while also aligning with the overall goals of the firm. This leads to better decision-making and improved profitability for the company as a whole. While options A and C may also be important considerations, B is the most comprehensive objective for a transfer pricing policy. Option D is not a relevant objective for transfer pricing policy.

What Should Be the Objective(s)of a Firm's Transfer Pricing Policy