Many firms have to transfer partially-produced products among its divisions, often across national borders. One the key issues in establishing a reliable performance system for each subunit or division is the:
A) degree held by the manager of the division.
B) transfer prices used for intra-company product movement.
C) choice of low cost / high volume strategy for production.
D) implementation of government-approved systems.

Question

Quizplus · Accepted Answer

The transfer prices used for intra-company product movement play a critical role in establishing a reliable performance system for each subunit or division, especially when partially-produced products are being transferred across national borders. Transfer pricing refers to the pricing method used to determine the value of goods or services transferred between different divisions of the same company. The choice of transfer price can impact the profitability of both the selling and buying divisions, and it can also influence their behavior and decision-making. Therefore, determining appropriate transfer prices is crucial for ensuring that each division is evaluated fairly and that the overall goals of the company are achieved.

Many Firms Have to Transfer Partially-Produced Products Among Its Divisions