In transfer pricing,the manager of the buying division is motivated to pay the highest price possible.The manager of the buying division will want to pay the lowest price possible.

Question

Quizplus · Accepted Answer

The manager of the buying division is motivated to pay the lowest price possible in order to maximize the division's profits. This is because the buying division will typically be evaluated based on its profitability. On the other hand, the manager of the selling division may be motivated to receive the highest price possible in order to maximize the division's revenues and profitability. This creates a potential conflict of interest in setting transfer prices, which must be carefully managed to ensure that they are fair and reasonable.

In Transfer Pricing,the Manager of the Buying Division Is Motivated