1. Lambda Technology

Scenario: Transfer Pricing Decision

Data: Lambda Technology has two divisions: Division A and Division B. Division A produces a component that Division B needs for its final product. Division A's variable cost per unit is $20, and Division B can buy the component from external suppliers for $25 per unit.

Requirements:

1. Calculate the minimum transfer price for Division A to sell the component to Division B.
2. Determine whether Lambda Technology should use cost-based or market-based transfer pricing.
3. Discuss the advantages and disadvantages of transfer pricing methods.
4. Analyze the impact of transfer pricing on divisional performance and profitability.
5. Evaluate Lambda Technology's governance and control mechanisms for transfer pricing.
6. Recommend a transfer pricing policy that aligns with Lambda Technology's strategic objectives.