TP

Question 1

methods?

Answer 1

Market based, marginal cost based tp’s, full cost tp’s, cost plus a mark up tp’s, negotiated tp’s,

Question 2

Advantages of negotiated tp’s

Answer 2

good when market imperfections and managers have equal bargainning power.
to be effective managers must understand cost and revenue info.

Question 3

Limitations of negotiated tp’s?

Answer 3

sub optimal decisions, time consuming, bargainning power of manager influences profatibility, innapropriate at times.

Question 4

Two ways to avoid a TP conflict?

Answer 4

1. Dual rate system, 2. Transfer at MC plus lumped sum

Question 5

Probelms with a dual rae TP system?

Answer 5

Confusion, Seen as artificial, Divisions protected from competition, reported inter-divisional profits can be misleading.

Question 6

advantaged of transfer at MC plus lumped sum

Answer 6

motivates receiving division to equate MC to net marginal revenue to determine optimum compnay profit maximising output level
enables supplying division to cover FC’s and earn profit, motivates receiving division to consider full cost of producing.