Goal-congruence problems with cost-plus transfer-pricing methods, dual-price method (continuation of 23-27). Assume that Oceanic Products uses a transfer price of 150% of full cost. Pat Forgione, the company president, attends a seminar on the virtues of decentralization. Forgione decides to implement decentralization at Oceanic Products. A memorandum is sent to all division managers: “Starting immediately, each division of Oceanic Products is free to make its own decisions regarding the purchase of its direct materials and the sale ofits finished product.”

Required 1. Give two examples of goal-congruence problems that may arise if Oceanic continues to use the 150%-of-full-costs transfer-pricing method and a policy of decentralization is adopted.

2. Forgione is investigating whether a dual transfer-pricing policy will reduce goalcongruence problems at Oceanic Products. Transfers out of each selling division will be made at 150% of full cost; transfers into each buying division will be made at market price. Using this dual transfer-pricing policy, compute the operating income of each division for a harvest of 1,000 kilograms of raw tuna that is further processed and marketed by Oceanic Products.

3. Compute the sum of the division operating incomes in requirement 2. Why might this sum not equal the overall corporate operating income from the harvesting of 1,000 kilograms of raw tuna and its further processing and marketing?

4. What problems may arise if Oceanic Products uses the dual transfer-pricing system described in requirement 2?