Final answer:
The decision on whether top managers should intervene in a transfer pricing dispute between division managers depends on the broader impact on the company's overall performance and the balance between preserving divisional autonomy and the need for oversight to prevent costly mistakes. The correct option is A.
Step-by-step explanation:
When a dispute arises over a transfer price, the question of whether top managers should intervene depends on various factors. On the one hand, top managers often have a broader perspective of the company's overall performance and strategy, which could justify their intervention to prevent costly mistakes that affect the firm as a whole. On the other hand, divisional managers are typically given autonomy because they are closer to the operations of their specific profit centers and may have insights that top management lacks.
In the context of larger strategic decisions, such as mergers and acquisitions, the stakes are higher, and top management involvement is critical. However, in the daily operations represented by transfer pricing disputes, intervention might undermine the independence of division managers, leading to conflicts and reduced motivation. Companies also face transaction costs and conformity costs with either centralized or decentralized decision-making processes.
In conclusion, while there is no one-size-fits-all answer, a company might favor top management intervention when the dispute has significant ramifications for the firm's health. In contrast, in situations where the impact is limited, preserving the autonomy of divisional managers might be the better course of action. This decision will ultimately be shaped by the specific circumstances and the potential impact on the company's overall performance.