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Unformatted text preview: 22-21 (Cont'd.)c.Motivating management effortYes, if based on budgeted costs (actual costs can then be compared to budgeted costs). If, however, transfers are based on actual costs, Airbag Division management has little incentive to control costs.d.Preserves subunit autonomyNo. Because it is rule-based, the Airbag Division has no say in and, hence, no ability to set the transfer price.3.If the two divisions were to negotiate a transfer price, the range of possible transfer prices will be between $110 and $140 per unit. The Airbag Division has excess capacity that it can use to supply airbags to the Igo Division. The Airbag Division will be willing to supply the airbags only if the transfer price equals or exceeds $110, its incremental costs of manufacturing the airbags. The Igo Division will be willing to buy airbags from the Airbag Division only if the price does not exceed $140 per airbag, the price at which the Igo division can buy airbags in the market from outside suppliers. market from outside suppliers....
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This note was uploaded on 02/05/2012 for the course ACCOUNTING acct 504 taught by Professor Dehmal during the Spring '10 term at DeVry Pittsburgh.
- Spring '10
- Financial Accounting