There will be an increased need for management attention and additional

There will be an increased need for management

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• There will be an increased need for management attention and additional overhead to negotiate and monitor such a small portion of the business. Perhaps the profit requirement exists to discourage internal Levis sales through a third party. Three alternatives for negotiating a selling price to Siviy are: • Transfer to Siviy at full cost plus transaction cost. This would ensure that no other Electronics customers would subsidize the sale of boards to Siviy. However, it is contrary to the current Electronics performance measurement system. • Transfer as an internal sale to Copy Products at full cost. Copy Products may then consign the boards to Siviy for use in the sub-system. This allows Electronics to acquire the added workload without incurring the additional transaction cost. However, Copy Products would bear the transaction costs in managing the consigned
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Exercises Responsibility Accounting and Transfer Pricing 07.02.2020 4 material. Copy Products would also bear the responsibility for the added inventory dollars for the boards while at Siviy. • Transfer at full cost plus profit. While this option would allow the Electronics Division to act in accordance with the standard transfer pricing policy, it may jeopardize the relationship between the two Levis divisions. It inflates the true cost of the board, which results in an inflated sub-system price from Siviy to Copy Products.
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  • Fall '18
  • Economics, cost centers, Electronics Division, Copy Products

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