Consider a decentralized company that has 22 divisions: Gold and Silver.The information for ????Gold is the following: Fixed and variable costs are £5050 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 £8080 per unit.The final product will be sold by Silver to external customers for £150150. Considering that managers of the company have established a transfer price policy of full cost plus 12%12%, which of the following statements is true? a.Given the current transfer pricing policy, managers from Gold do not have incentives to minimize costs.b.Silver will sell the intermediary product to Gold for £5656.c.Gold will have a profit of £1414 per unit.d.None of the answers is true.

Transfer pricing policy refers to the rules and guidelines that a company establishes to determine…

Answered: Consider a decentralized company that…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Consider a decentralized company that has 22 divisions: Gold and Silver.

The information for ????Gold is the following:

Fixed and variable costs are £5050 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 £8080 per unit.
The final product will be sold by Silver to external customers for £150150.

Considering that managers of the company have established a transfer price policy of full cost plus 12%12%, which of the following statements is true?

Given the current transfer pricing policy, managers from Gold do not have incentives to minimize costs.

Silver will sell the intermediary product to Gold for £5656.

Gold will have a profit of £1414 per unit.

None of the answers is true.

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