Describe and evaluate the various approaches for setting transfer prices. How can the use of...

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Describe and evaluate the various approaches for setting transfer prices. How can the use of different approaches between the selling and buying divisions be reconciled?    The answer:  1. should not be less than 500 word  2. Use and indicate three references, one of them is Atrill, P. & McLaney, E XXXXXXXXXXManagement accounting for decision makers. 7th ed. Harlow, England : Pearson Education Ltd.( the referencing sector is not counted as part of the answer)
	
Document Preview: Managing Finance (MNGFIN) 
Week 7: Measuring and controlling performance 
 
Advantages and disadvantages of divisional structure 
Textbook reading (Atrill & McLaney: Ch. 10) 
 
The global business environment has spawned some of the largest organisations 
ever, both in terms of financial size as well as physical reach. Such organisations are 
involved with myriad activities and operations—some similar, some completely 
unrelated. A difficult choice for decision makers within these companies is how to 
properly segment the organisation in a manner that ‘makes sense’ while also 
maximising performance.  
One of the most appropriate methods for structuring such large organisations is by 
division; this divisional structure has proven to be an adequate approach to 
measuring as well as controlling the operations within a company. There are no 
boilerplate rules that must be followed with regards to how an organisation is 
segmented; however, it has been fairly common to create and organise divisions 
based on products, services, or geographic location. By doing so, decision making is 
transferred from executive managers at the corporate headquarters to divisional 
managers, who are then given the responsibility of overseeing the activities and 
operations of the division and charged with allocated objectives in terms of 
profitability.  
This transfer of power is an important advantage of the divisional structure, as 
divisional managers are allowed more freedom in decision making. It is these 
individuals who are closer to the action, possess greater knowledge of specific 
conditions, and need the ability to make the vital decisions concerning the 
profitability of the division in a timely manner. With this power, divisional managers 
are also responsible for ensuring the performance of their division, creating a 
continuous motivating factor for such managers to meet certain standards. 
While the divisional structure carries certain advantages, it also has some...

Robert · Accepted Answer

TRANSFER PRICING 
 
In today’s world of globalization, organizations have segmented their operations. The main 
problem faced by the decision makers is how to segment the departments which results in 
maximizing performance. 
The most appropriate method of segmenting the organizations is to divide the departments as per 
the work done by them. This will helps in better controlling of operations within organization. 
Through this responsibility will be segregated among different divisional managers. 
Divisional managers are responsible for ensuring long term profitability. While achieving the 
desired results, managers may face conflicting goals.  
In large organizations, multiple divisions exists, it is probable that one division will sell goods to 
another division. The price that is charged by one department from another for the goods 
transferred is called Transfer Pricing. 
Transfer pricing is very important tool that is used to evaluate the performance of divisions 
within an organization. Transfer pricing should be used carefully,

Describe and evaluate the various approaches for setting transfer prices. How can the use of different approaches between the selling and buying divisions be reconciled? The answer: 1. should not be...

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