LCOR SMELTING plc is divided into five divisions that provide consultancy services to each other and to outside customers. The divisions are: 

1) Computing and Information Technology 

2) Human Resources 

3) Legal 

4) Engineering 

5) Finance A part of the company policy is that all budgets are to be prepared centrally with each division being given sales and profits targets. However, the divisional managers feel that these targets are unrealistic because they do not seem to consider the individual circumstances of each division, or how their profitability is affected when each division provides services for each other. The current basis for charging for these services is to use the actual marginal cost of the supplying division. 

ALCOR SMELTING plc, having considered the concerns highlighted by each divisional manager asked that the managers prepare their own budgets for the next financial year as well as submit their proposals for a new charging system. Like budgetary and management controls, ALCOR SMELTING plc has discovered that transfer prices are needed when businesses are divided into several business units to facilitate the flow of goods and services between the divisions and to encourage behavior that is consistent with the organization’s strategy. 

1 Using no more than 3000 words (+/- 10%) prepare a report in response to a) - h) below. (RESPONSES SHOULD BE RELATED TO THE CASE ABOVE- information below is general and should be related to the case to earn full marks.) 

a) Explain the circumstances in which transfer prices are needed 

b) Describe the various transfer pricing strategies and how they affect a business division (16 marks) c) Outline three characteristics of a good transfer price 

d) Explain the two proposals that have been advocated to resolve transfer pricing conflicts. 

e) Identify two additional factors that must be considered when setting transfer prices for multinational entities that are involved in international trade. 

f) Explain the relationship between transfer pricing and the balanced scorecard. 

g) Compare the four-main responsibility centers and how they relate to the transfer pricing strategy of an organization. 

h) Outline the human influences to be considered for a business to achieve its goals.