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Analysis
Yes. if no orders come from top management Kenton would accept the
lowest bid. The vice president of Birch should take action in order to remedy
the overall problems associated with this transfer pricing policy. The
question of if the VP should take any action is a dilema in this matter as
there are Pros and Cons on each side. If the vice president gets involved in
the bidding process it is like not enough space and doubting their capability
of the division managers.
Question 2
What would you recommend if there were no organizational structure
constraints on your options?
If there were no organizational structure constraints, the transfer price
could be revised either to market price or the price charged by the
Milling Division to its industrial customers.