Manufacturing company uses particular product

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Reference no: EM132306033

A manufacturing company uses a particular product that can be bought/sold in a well-established market. Management has recommended vertically integrating backward to produce the part themselves and reduce costs. Their proposal is to treat the upstream division as a cost center and set the internal transfer price at the cost of production, thereby lowering the costs of the downstream division. Your friend, a member of the company’s board, asks your opinion on the proposal, and whether there are any potential issues of concern with the proposed organizational alignment and transfer pricing strategy. What say you?

Reference no: EM132306033

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