\fFigure 2: The 3 P's of Kilgors Value System PEOPLE Individual development; teamwork and autonomy Planet Performance Corporate and social responsibility thILogfttel-m stimehtzlliderlvalllle throu lobal citizenshi ou umova 1011 , VISIOa c0- gh g p ooeration and market leadership Currently, divisional performance is measured and monitored using a set of balanced scorecard metrics, although divisional managers bonus payments are connected to financial-based performance measures. Transfer pricing issues The current transfer pricing policy at Kilgors is based on market-based transfer pricing method with no sourcing autonomy where internal demand exists. Currently, within Kilgors, the level of internal transactions is relatively small, representing no more than 5% of any ofthe three divisions' activities. Mostly, each division ofKilgors would be regarded as operating at full capacity though the Wine Division does have some excess stock of some wine varieties. The following conversation occurred at a recent management meeting: Charles {Hospitality Divisional Manager): "...a lot of these wines we are sourcing from Lee at the Wine Division seem a bit overpriced to me......\" Lee (Wine Divisional Manager): "Not so Charles, the current policy allows for market price as the basis for our internal transactions..." Charles: "That may be so, but if I go to my local bottle shop | see the same wines I am buying from you, a lot cheaper. How does that work? I know you would be selling to the retailers at a discount, but still: my profits and return on investment are impacted by these high prices I am paying you ....... \" When it comes to a suitable transfer pricing policy, does it really make any difference if senior management is seeking a 'more competitive', or 'more co operative', type of organization? Briefly explain. Use the case facts to assist with your explanation. [7 marks) 13|Page Do you think there is any need to change the current transfer pricing policy at Kilgors? Explain, including an outline of the benets of your decision to change or not change the policy. [8 marks)