Consider a decentralized company that has 2 divisions: Gold and Silver. The information for Gold is the following: • Fixed and variable costs are £50 per unit. • The intermediary product produced by Gold will be transferred to Silver to create the final produc • Gold does not sell the intermediary product to external customers. The information for Silver is the following:
Consider a decentralized company that has 2 divisions: Gold and Silver. The information for Gold is the following: • Fixed and variable costs are £50 per unit. • The intermediary product produced by Gold will be transferred to Silver to create the final produc • Gold does not sell the intermediary product to external customers. The information for Silver is the following:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
S5.
![Consider a decentralized company that has 2 divisions: Gold and Silver.
The information for Gold is the following:
Fixed and variable costs are £50 per unit.
• The intermediary product produced by Gold will be transferred to Silver to create the final product.
• Gold does not sell the intermediary product to external customers.
·
The information for Silver is the following:
• Fixed and variable costs of processing the intermediary product equal £80 per unit.
• The final product will be sold by Silver to external customers for £150.
Considering that managers of the company have established a transfer price policy of full cost plus 12%,
which of the following statements is true?
O a. Given the current transfer pricing policy, managers from Gold do not have incentives to minimize
costs.
O b.
O c.
O d.
Silver will sell the intermediary product to Gold for £56.
Gold will have a profit of £14 per unit.
None of the answers is true.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8d0e6bf9-348c-40ab-ae4c-488cbc0bf710%2F20f83ad5-f3a7-4929-a20f-df57ec8248d8%2Ffv8c2hp_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider a decentralized company that has 2 divisions: Gold and Silver.
The information for Gold is the following:
Fixed and variable costs are £50 per unit.
• The intermediary product produced by Gold will be transferred to Silver to create the final product.
• Gold does not sell the intermediary product to external customers.
·
The information for Silver is the following:
• Fixed and variable costs of processing the intermediary product equal £80 per unit.
• The final product will be sold by Silver to external customers for £150.
Considering that managers of the company have established a transfer price policy of full cost plus 12%,
which of the following statements is true?
O a. Given the current transfer pricing policy, managers from Gold do not have incentives to minimize
costs.
O b.
O c.
O d.
Silver will sell the intermediary product to Gold for £56.
Gold will have a profit of £14 per unit.
None of the answers is true.
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