Buying Division Paying Full Cost to Selling Division
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Could you please elaborate further how a firm's profitability may be affected if a buying division is paying the full cost when buying from the selling division?
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This solution elaborates how a firm's profitability may be affected if a buying division is paying the full cost when buying from the selling division.
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A firm's profitability is affected based upon the amount product is transferred from one division to another. The transfer price creates revenues for the selling division and purchase costs for the buying division, affecting each division's operating income. By transferring at full cost divisional autonomy is preserved but at the same time, the opportunity ...
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