Transfer Pricing: Performance Evaluation Issues

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Transfer Pricing: Performance Evaluation Issues

The switch should be supplied to the northern division since it seems that there is excess capacity in the southern division. This is due to the decreased cost of the switch when dealing with the northern division. The external demand for the switch seems to be constrained and for this reason, the southern division should take the opportunity and maximize on the available opportunity (Abdallah, 2004, p. 109). The cost of production has been factored in the price of the switch and despite the deceased profit margin; the southern division will not incur any losses.

The kitchen that is being constructed will not only be beneficial to the northern division, but to the entire corporation. Cochise Corporation will benefit from the transactions, if the northern division is supplied with the switch. The goals of the entire corporation will hence be realized and for this reason, the southern division should not hesitate to sell the switch to the northern division. It will benefit in terms of sales and profits, and also help the corporation ach...

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