Question

Which of the following describes the goal that should be pursued when setting transfer prices? Minimize opportunity costs. Maximize profits of the buying division. Allow top management to become actively involved when calculating the proper dollar amounts. Establish incentives for autonomous division managers to make decisions that are in the overall organization's best interests (i.e., goal congruence). Maximize profits of the selling division.

Answer 1

Establish incentives for autonomous division managers to make decisions that are in the overall organization's best interests (i.e., goal congruence).

Step-by-step explanation:

The Price at which the related parties transact with each other is called transfer pricing. It is commonly practiced by the multi-entity corporations like groups etc. Transfer pricing actually transfer income and cost of product with each other for tax purposes. Minimizing the whole group tax benefits the overall organization. The objective of the manager in transfer pricing is to minimize the cost and maximize the shareholders wealth which is the main object of a corporation or company.

Answer 2

Establish incentives for autonomous division managers to make decisions that are in the overall organization's best interests (i.e., goal congruence).