Question

Center Chemical Company's Industrial Division makes 400,000 gallons of rubbing alcohol each year and has enough capacity to manufacture 40,000 more. Center's leadership wants the Industrial Division to sell 75,000 gallons of the alcohol to the firm's Consumer Division, which currently purchases alcohol from an outside vendor. Center's VP of Operations thinks the best way to arrange a transfer between the two divisions is via cost-based transfer pricing, while the firm's CFO argues that use of negotiated transfer pricing is a better option. If Center's CEO wants the firm to better control costs across all divisions, she should go with the pricing plan proposed by the _________.

Answer 1

Answer:

cost-based transfer pricing

Explanation:

If the firm uses negociated rtansfer pricing they will stablish the transfer price based on manager bargain skill and leverage of each division. The CEO will not a grip on controlling cost across all dvisions, the managers will.

Therefore the best option is to go with a cost-based transfer pricing. The CEO can determinatethe method to determinate the cost and indriectly the cost across all divisions.