Top managers who wish to encourage decentralization will often make sure that both production and purchasing division managers understand all the facts and then allow the managers to negotiate a transfer price.

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Decentralization involves delegating decision-making power to lower-level managers. Transferring goods or services between departments is an example of decentralized decision-making. To encourage this, top managers may allow division managers to negotiate a transfer price. This ensures that both parties understand the costs and benefits of the transfer and can come to a mutually beneficial agreement.

Top Managers Who Wish to Encourage Decentralization Will Often Make