One month ago, Wakefield Hospital redesigned their responsibility accounting structure to designate each department as a profit center. On purpose, the administration did not dictate any transfer pricing rules in performing this redesign so as to give the managers relatively unbounded autonomy in their transfer pricing negotiations. Consequently, all department heads developed their own pricing schemes for charging other departments and the market, where applicable. Kip Dynamite, Operating Room Manager, has just received a price estimate from the Legal Department for reviewing some maintenance contracts held by the operating room. The estimate is $400 for 2 hours of work. Kip is shocked that a formerly free service could cost so much, so he makes some calls. He finds several contract lawyers charging between $150 and $170 per hour. He immediately calls Manuel Sanchez, manager of the Legal Department, and demands to know why his price is so high. Manuel replies that his price breaks down to $200 per hour (10% variable costs, 80% fixed costs, 10% profit) because that is what he can charge in the market. The Legal Department is always at capacity because it provides services to the market by consulting for smaller medical facilities in the area. Kip threatens to take his business elsewhere, and both Manuel and Kip email the CFO, Liz Lucas, with their sides of the story.

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-Ms. Lucas asks you whether or not she should intervene, and why. What is her best decision in this instance, and reason for that decision? (Consider both the short and long term effects of her intervening). Group of answer choices

-She should intervene, as it will definitely be better for Wakefields bottom line in the long run

-She should intervene as it sets a precedent for what departments should do in all cases like this in the future

-She should not intervene, as she cannot influence the final transfer price

-She should not intervene, at least immediately, as that would contradict the organization's redesigned responsibility accounting structure that gives managers "relatively unbounded autonomy"