Computech Company operates as a decentralized multidivisional electronics compan

Question

Computech Company operates as a decentralized multidivisional electronics company. Its laptop division buys most of its monitors from the screen division. The screen division’s incremental costs for manufacturing the moni- tors are $280 per unit. The screen division is currently working at 85% of capacity. The monitor’s current market price is $310 per unit. See attached screenshot

P9-48A Computech Company operates as a decentralized multidivisional electronics company. Its laptop division buys most of its monitors from the screen division. The screen division's incremental costs for manufacturing the moni tors are $280 per unit. The screen division is currently working at 85% of capacity. The monitor's current market price is $310 per unit Instructions (a) Using the general approach to transfer pricing, determine the minimum transfer price for the screen division (b) Computech Company's transfer price rules state that whenever divisions with unused capacity sell products internally (a) $280 they must transfer the products at incremental costs. Discuss how this transfer-price policy will affect goal congruence, division performance, and autonomy (c) The screen and laptop divisions have negotiated a transfer price between $280 and $310 per monitor. Discuss the im pact of this transfer price on each division in terms of goal congruence, division performance, and division autonomy

Explanation / Answer

(a) Minimum transfer price for screen division = incremental price = $280

(b) Goal congurance is defined as consistency or agreement of individual goals with company goals, if division transfer at incremental cost then profit of the division will not reflect but if you see as a whole company then net profit of the company will increase. in regard to the divsion performance, performance of transfer division may affect and receiver division may improved.

(c) If screen division transfer at 280 to laptop division then income of screen division will shown less but shown higher in laptop division and if you see sa a whole company income would remain same between selling price 280 to 310.

If screen division transfer at 310 to laptop division then income of screen division will shown more but shown less in laptop division and if you see sa a whole company income would remain same between selling price 280 to 310.

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