Scribd
Upload
186 views1 page

Goal Congruence Problems With Cost Plus Transfer Pricing Methods

The document discusses goal congruence problems that can arise with cost-plus transfer pricing methods when divisions are decentralized. Specifically, it covers: 1) Using a 200% cost transfer price can create goal incongruence when divisions make independent decisions. 2) The CEO proposes a dual transfer price system - charging the harvesting division 200% of cost while charging the processing division market price. 3) The sum of division incomes may differ from company profits under this dual system due to internal transfers being treated differently.

Uploaded by

trilocksp Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
186 views1 page

Goal Congruence Problems With Cost Plus Transfer Pricing Methods

The document discusses goal congruence problems that can arise with cost-plus transfer pricing methods when divisions are decentralized. Specifically, it covers: 1) Using a 200% cost transfer price can create goal incongruence when divisions make independent decisions. 2) The CEO proposes a dual transfer price system - charging the harvesting division 200% of cost while charging the processing division market price. 3) The sum of division incomes may differ from company profits under this dual system due to internal transfers being treated differently.

Uploaded by

trilocksp Singh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

Solved: Goal congruence problems with cost plus transfer

pricing methods
Goal congruence problems with cost plus transfer pricing methods

Goal-congruence problems with cost-plus transfer-pricing methods, dual-pricing system


(continuation of 22-30). Assume that Pat Borges, CEO of Crango, had mandated a transfer
price equal to 200% of full cost. Now he decides to decentralize some management decisions
and sends around a memo that states: “Effective immediately, each division of Crango is free to
make its own decisions regarding the purchase of direct materials and the sale of finished
products.”
1. Give an example of a goal-congruence problem that will arise if Crango continues to use a
transfer price of 200% of full cost and Borges’s decentralization policy is adopted.
2. Borges feels that a dual transfer-pricing policy will improve goal congruence. He suggests
that transfers out of the Harvesting Division be made at 200% of full cost and transfers into the
Processing Division be made at market price. Compute the operating income of each division
under this dual transfer pricing method when 400,000 pounds of cranberries are harvested
during June 2009 and processed into juice.
3. Why is the sum of the division operating incomes computed in requirement 2 different from
Crango’s operating income from harvesting and processing 400,000 pounds of cranberries?
4. Suggest two problems that may arise if Crango implements the dual transfer prices described
in requirement 2.

Goal congruence problems with cost plus transfer pricing methods

ANSWER
https://solvedquest.com/goal-congruence-problems-with-cost-plus-transfer-pricing-methods/

Reach out to [email protected] for enquiry.


Powered by TCPDF (www.tcpdf.org)

You might also like