Management's challenge is to set transfer prices so that both the buyer and seller have goal congruence with respect to the organization's goals.How is this accomplished?
A)With no intervention from top management to set the transfer price for each transaction between divisions.
B)With top management establishing transfer price policies that divisions follow.
C)With division managers not engaging in negotiation to set transfer prices among themselves.
D)All of the answers are correct.

Question

Quizplus · Accepted Answer

Top management needs to establish transfer price policies that align with the organization's goals and ensure goal congruence between the buyer and seller divisions. This is done to avoid conflicts of interest and ensure smooth operations within the organization. Without such policies, the division managers may negotiate prices that align with their division's goals, but not with the overall goals of the organization, leading to a suboptimal outcome. Therefore, B is the best choice. Choices A and C are not feasible options as they lack the necessary oversight and structure to achieve goal congruence. Choice D is incorrect as not all answers are correct.

Management's Challenge Is to Set Transfer Prices So That Both