=+19-31 KK Goal-congruence problems with cost-plus transfer-pricing methods, dual-pricing system

(continuation of 19-30) OBJECTIVES 3, 4, 8 Assume that Mike Hampdon, CEO of Healthy Harvest Ltd, had mandated a transfer price equal to 200% of full cost. Now he decides to decentralise some management decisions and sends a memo that states: ‘Effective immediately, each division of Healthy Harvest Ltd is free to make its own decisions regarding the purchase of direct materials and the sale of finished products.’

Required 1 Give an example of a goal-congruence problem that will arise if Healthy Harvest Ltd continues to use a transfer price of 200%

of full cost and Mike Hampdon’s decentralisation policy is adopted.