Explanation Ethical behavior of DB : If the selling or supplying division holds excess capacity, then the buying division could prefer the negotiated price approach over market price approach. So, the selling division negotiates to sell at a price not less than the variable expenses, and the buying division negotiates to purchase at a price less than the market price. This is the main factor involved in setting transfer prices. In the given situation, H is the head of S Division, the supplying division and DB is the head of X Division, the buying division. DB’s behavior is ethical because he wanted to buy at a price less than the market price, $100. DB’s behavior would be unethical if he intended to refuse the offer of H and prove that the performance of S Division is not good...

13th Edition

ISBN: 9781337816045

Author: WARREN

Publisher: CENGAGE L

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Question

Chapter 23, Problem 23.1CP

To determine

Transfer price: The price charged for the goods and services transferred among the divisions is referred to as transfer price.

Approaches for setting transfer prices:

Market price approach

Negotiated price approach

Cost price approach

To discuss: The ethical behavior of DB in setting transfer prices, and comments on H’s reaction.

Expert Solution & Answer

Chapter 23 Solutions

FINANCIAL AND MANAGERIAL ACCOUNTING

Ch. 23 - Prob. 1DQ Ch. 23 - Differentiate between a profit center and an...Ch. 23 - Weyerhaeuser developed a system that assigns...Ch. 23 - What is the major shortcoming of using income from...Ch. 23 - In a decentralized company in which the divisions...Ch. 23 - How does using the return on investment facilitate...Ch. 23 - Why would a firm use a balanced scorecard in...Ch. 23 - Prob. 8DQ Ch. 23 - When is the negotiated price approach preferred...Ch. 23 - When using the negotiated price approach to...

Ch. 23 - Prob. 23.1APE Ch. 23 - Prob. 23.1BPE Ch. 23 - Service department charges The centralized...Ch. 23 - Service department charges The centralized...Ch. 23 - Income from operations for profit center Using the...Ch. 23 - Prob. 23.3BPE Ch. 23 - Prob. 23.4APE Ch. 23 - Profit margin, investment turnover, and ROI Briggs...Ch. 23 - Residual income The Consumer Division of Hernandez...Ch. 23 - Prob. 23.5BPE Ch. 23 - Transfer pricing The materials used by tile North...Ch. 23 - Transfer pricing The materials used by the...Ch. 23 - Budget performance reports for cost centers...Ch. 23 - Divisional income statements The following data...Ch. 23 - Service department charges and activity bases For...Ch. 23 - Prob. 23.4EX Ch. 23 - Service department charges In divisional income...Ch. 23 - Service department charges and activity bases...Ch. 23 - Divisional income statements with service...Ch. 23 - Prob. 23.8EX Ch. 23 - Prob. 23.9EX Ch. 23 - Rate of return on investment The income from...Ch. 23 - Residual income Based on the data in Exercise...Ch. 23 - Determining missing items in return on investment...Ch. 23 - Prob. 23.13EX Ch. 23 - Prob. 23.14EX Ch. 23 - Prob. 23.15EX Ch. 23 - Determining missing items from computations Data...Ch. 23 - Prob. 23.17EX Ch. 23 - Prob. 23.18EX Ch. 23 - Building a balanced scorecard Hit-n-Run Inc. owns...Ch. 23 - Decision on transfer pricing Materials used by the...Ch. 23 - Prob. 23.21EX Ch. 23 - Budget performance report for a cost center...Ch. 23 - Prob. 23.2APR Ch. 23 - Divisional income statements and rate of return on...Ch. 23 - Effect of proposals on divisional performance A...Ch. 23 - Prob. 23.5APR Ch. 23 - Prob. 23.6APR Ch. 23 - Prob. 23.1BPR Ch. 23 - Prob. 23.2BPR Ch. 23 - Prob. 23.3BPR Ch. 23 - Prob. 23.4BPR Ch. 23 - Prob. 23.5BPR Ch. 23 - Prob. 23.6BPR Ch. 23 - Prob. 23.1CP Ch. 23 - Prob. 23.2CP Ch. 23 - Evaluating divisional performance The three...Ch. 23 - Evaluating division performance over time The...Ch. 23 - Evaluating division performance Last Resort...

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