Dispute Resolution: Facets of Transfer Pricing

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Dispute Resolution The proposed plan would cause a reduction of $100,000 for Division A, $50,000 cost reduction for Division B, and $700,000 in profit reduction for Division C. The company would have a profit increase of $80,000 under the proposal. Suppose Division C agreed to drop their prices to meet the market prices of the products and the other division agreed to Division C supplying all of the production. Division C would still lose $700,000 in profits, but the company would have an increased profit of $400,000 instead of just $80,000. Division C would have a higher production and not have to lay off production workers. They would still come out with $1,700,000 in profit. Under the proposed plan, the production would be cut drastically. Putting more dollars into research and development and potential improvement of existing products, as well as, having a flexible procurement could supply variants as more opportunity for change (Sahay). Existing products can be improved and new products implemented with more research and development for possible market entry. Division C would have a better chance at selling in the market instead of just intercompany sales and increases in the price of the product can be implemented with product improvements. This would bring expansion for Division C. Managers should concentrate on working to increase productivity per labor hour and production efficiency to maximize profit potential. The idea of profit is not the major issue at

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