Tom & Jerry are running Hanna Barbera's lemonade stand as two profit centers.Tom makes the lemonade while Jerry sells it.Jerry argues that Tom is transferring the lemonade to him priced too high,which forces him to charge the customers a high price,losing sales.What could be a profitable solution to this transfer-pricing problem?
A)Move the decision making to Hanna Barbera
B)Turn Tom's division into a cost center
C)Base Tom's reward on the company profits
D)Base Jerry's reward on the company profits

Question

Tom & Jerry are running Hanna Barbera's lemonade stand as two profit centers.Tom makes the lemonade while Jerry sells it.Jerry argues that Tom is transferring the lemonade to him priced too high,which forces him to charge the customers a high price,losing sales.What could be a profitable solution to this transfer-pricing problem?
A)​Move the decision making to Hanna Barbera
B)Turn Tom's division into a cost center
C)Base Tom's reward on the company profits
D)​Base Jerry's reward on the company profits

Quizplus · Accepted Answer

By turning Tom's division into a cost center, he will no longer be focused on maximizing profits from selling the lemonade to Jerry. Instead, Tom will focus on minimizing costs, which will ensure that he transfers the lemonade to Jerry at a fair and reasonable price. This will enable Jerry to sell the lemonade at a competitive price, leading to higher sales and profits for the overall business.

Tom & Jerry Are Running Hanna Barbera's Lemonade Stand as Two