Asked by Alyssa Vallejos on Sep 24, 2024
Verified
Tom & Jerry are running Hanna Barbera's lemonade stand as two profit centers.Tom makes the lemonade while Jerry sells it.Jerry argues that Tom is transferring the lemonade to him priced too high,which forces him to charge the customers a high price,losing sales.What could be a profitable solution to this transfer-pricing problem?
A) Move the decision making to Hanna Barbera
B) Turn Tom's division into a cost center
C) Base Tom's reward on the company profits
D) Base Jerry's reward on the company profits
Transfer-Pricing
The pricing of goods, services, and intangible property bought and sold by operating units or divisions within the same company.
Profit Centers
Divisions or segments of a business that are directly responsible for generating its profits.
Hanna Barbera's
An American animation studio known for creating iconic cartoon characters and series, such as "Scooby-Doo" and "The Flintstones".
- Discuss the challenges and solutions related to transfer pricing within a firm.
Verified Answer
MB
Mary Beth Powellabout 8 hours ago
Final Answer :
B
Explanation :
By turning Tom's division into a cost center, he will no longer be focused on maximizing profits from selling the lemonade to Jerry. Instead, Tom will focus on minimizing costs, which will ensure that he transfers the lemonade to Jerry at a fair and reasonable price. This will enable Jerry to sell the lemonade at a competitive price, leading to higher sales and profits for the overall business.
Learning Objectives
- Discuss the challenges and solutions related to transfer pricing within a firm.