05 Jan Managing decentralised organisationsWe Know Our Ca
Managing decentralised organisationsWe Know Our Cars Ltd operates as a decentralised multi-division company. The Assembly Division is required to purchase most of its airbags from the Airbag Division. The Airbag Division’s variable cost for manufacturing the airbags is $90 per unit. The Airbag Division is currently working at 80% of capacity. The current market price of the airbag is $125 per unit.Required:1. What is the minimum price at which the Airbag Division would sell airbags to the Assembly Division?2. Suppose that We Know Our Cars requires that whenever division with unused capacity sell products internally, they must do so at variable cost.Evaluate the transfer pricing policy using the criteria for goal congruence, evaluating division performance, motivating management effort and preserving division autonomy.
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