Problem 222 Transfer Prices Set by Headquarters List three r

Problem 22-2 Transfer Prices Set by Headquarters: List three reasons why might it be a bad idea to have corporate headquarters set transfer prices.

Solution

Transfer price is that price which an organanisation charges to another organisation for the supply of any good or service.Buying organisation can request corporate headquarters to ask seller to charge low transfer price.Efficient transfer prices are opportunity costs of goods that are supplied.

Managers of selling company can lie to corporate headquarters about costs linked to transfer price.So they will not be in a position to set best transfer price.