Ross Company uses net book value as a measure of invested capital when computing ROI. A division…
Ross Company uses net book value as a measure of invested capital when computing ROI. A division manager has suggested that the company change to using gross book value instead. What difference in motivation of division managers might result from such a change? Do you suppose most of the assets in the division of the manager proposing the change are relatively new or old? Why?
1. Why do companies need transfer-pricing systems?
2. Describe two problems that can arise when using actual full cost as a transfer price.
3. How does the presence or absence of idle capacity affect the optimal transferpricing policy?