Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

P22-29 22-29 Goal-congruence problems with cost-plus transfer-pricing methods, dual-pricing system (con- tinuation of 22-28). Assume that Pat Borges, CEO of Cran Health, had mandated a

image text in transcribed
P22-29 22-29 Goal-congruence problems with cost-plus transfer-pricing methods, dual-pricing system (con- tinuation of 22-28). Assume that Pat Borges, CEO of Cran Health, had mandated a transfer price equal to 225% of full cost. Now he decides to decentralize some management decisions and sends around a memo that states the following: "Effective immediately, each division of Cran Health is free to make its own deci- sions regarding the purchase of direct materials and the sale of finished products." Required 1. Give an example of a goal-congruence problem that will arise if Cran Health continues to use a transfer price of 225% of full cost and Borges's decentralization policy is adopted. 2. Borges feels that a dual transfer-pricing policy will improve goal congruence. He suggests that transfers out of the harvesting division be made at 225% of full cost and transfers into the processing division be made at market price. Compute the operating income of each division under this dual transfer-pricing method when 480,000 pounds of cranberries are harvested during June 2017 and processed into juice. 3. Why is the sum of the division operating incomes computed in requirement 2 different from Cran Health's operating income from harvesting and processing 480,000 pounds of cranberries? 4. Suggest two problems that may arise if Cran Health implements the dual transfer prices described in requirement 2

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Horngrens Financial & Managerial Accounting The Financial Chapters

Authors: Tracie L. Miller Nobles, Brenda L. Mattison, Ella Mae Matsumura

4th Edition

0133255573, 978-0133255577

More Books

Students also viewed these Accounting questions

Question

Technology

Answered: 1 week ago

Question

Population

Answered: 1 week ago