138) Briefly describe the conditions that should be met for market-based transfer pricing to lead to optimal decision

making among subunits of a large organisation.

139) Discuss the possible problems a corporation might have if its operations are totally decentralised.

140) The Assembly Division of The Melbourne Car Company has offered to purchase 90 000 batteries from the

Electrical Division for $104 per unit. At a normal volume of 250 000 batteries per year, production costs per

battery are as follows:

Direct materials $40

Direct manufacturing labour 20

Variable factory overhead 12

Fixed factory overhead 40

Total $112

The Electrical Division has been selling 250 000 batteries per year to outside buyers at $136 each; capacity is 350

000 batteries per year. The Assembly Division has been buying batteries from outside sources for $130 each.


a. Should the Electrical Division manager accept the offer? Explain.

b. From the company's perspective, will the internal sales be of any benefit? Explain.



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