SWAL has two divisions, SW and AL, which operate as profit centres and have full autonomy in making, buying and selling decisions. SW manufactures SW+ at a cost of $12 per unit. The market price of SW+ is $16 per unit. AL uses SW+ in manufacturing its own product. The transfer price of SW+ when transferred from Division SW to Division AL is set at full production cost plus 20%. Which one of the following independent circumstances represents dysfunctional behaviour arising from SWAL's transfer pricing policy?
A、SW refuses to sell SW+ to AL as there is unlimited demand for SW+ in the external market.
B、AL refuses to order from SW as it can buy SW+ from the open market at lower than current transfer price. As a result, SW sells all its units on the open market.
C、SW refuses to transfer below market price so AL is forced to buy from the external market.
D、SW agrees to sell to AL but has to cancel the sale in order to fulfil an urgent customer order who is willing to pay a higher price for immediate delivery.
A、SW refuses to sell SW+ to AL as there is unlimited demand for SW+ in the external market.
B、AL refuses to order from SW as it can buy SW+ from the open market at lower than current transfer price. As a result, SW sells all its units on the open market.
C、SW refuses to transfer below market price so AL is forced to buy from the external market.
D、SW agrees to sell to AL but has to cancel the sale in order to fulfil an urgent customer order who is willing to pay a higher price for immediate delivery.
【参考答案及解析】
The correct answer is: SW refuses to transfer below market price so AL is forced to buy from the external market. This action will result in dysfunctional behaviour as both divisions' actions are not in the interest of the company. Head Office intervention should resolve the problem in the short term. Distractors: SW refuses to sell SW+ to AL as there is unlimited demand for SW+ in the external market. Since there is full autonomy, SW will want to satisfy external demand to maximise its profits and that of the group. AL refuses to order from SW as it can buy SW+ from the open market at lower than current transfer price. As a result, SW sells all its units in open market. No dysfunctional behaviour as both divisions' actions will maximise group profits. SW agrees to sell to AL but has to cancel the sale in order to fulfill an urgent customer order, willing to pay a higher price for immediate delivery. Since both divisions have autonomy in making buying and selling decisions, this short term action will not result in dysfunctional behaviour.
The correct answer is: SW refuses to transfer below market price so AL is forced to buy from the external market. This action will result in dysfunctional behaviour as both divisions' actions are not in the interest of the company. Head Office intervention should resolve the problem in the short term. Distractors: SW refuses to sell SW+ to AL as there is unlimited demand for SW+ in the external market. Since there is full autonomy, SW will want to satisfy external demand to maximise its profits and that of the group. AL refuses to order from SW as it can buy SW+ from the open market at lower than current transfer price. As a result, SW sells all its units in open market. No dysfunctional behaviour as both divisions' actions will maximise group profits. SW agrees to sell to AL but has to cancel the sale in order to fulfill an urgent customer order, willing to pay a higher price for immediate delivery. Since both divisions have autonomy in making buying and selling decisions, this short term action will not result in dysfunctional behaviour.