SpandoCorp is a diversified firm that makes industrial, military and consumer products from Spandex. SpandoCorp manages each of the businesses that it operates in as a separate division and treats each as a True profit-and-loss center. In this organization, Grace McKenna is responsible for deciding which set of businesses SpandoCorp will operate in and for encouraging behavior that is consistent with this strategy, Wells Tucker provides information to McKenna about the internal and external environments that she uses in her decision making, and Kelly Rae is one of the individuals who is responsible for evaluating the firm's decision making to ensure that it is consistent with the interests of equity holders.
-If the bulk materials division of SpandoCorp sold its reams of Spandex to the military division and set the transfer price of these reams equal to the bulk materials actual cost of production, SpandoCorp would be using the ________ transfer pricing scheme.
A) exchange autonomy
B) mandated full cost
C) mandated market based
D) dual pricing

Question

Quizplus · Accepted Answer

The mandated full cost transfer pricing scheme sets the transfer price at the full cost of production, including both variable and fixed costs. In this case, the bulk materials division is selling its product to another division within the same company, so using a market-based transfer price would not be appropriate. Dual pricing involves using different transfer prices for internal and external transactions, which is not the case here. Exchange autonomy involves allowing divisions to negotiate transfer prices with each other, which is not the case here either. Therefore, the best choice is mandated full cost.

SpandoCorp Is a Diversified Firm That Makes Industrial, Military and Consumer