Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 11

Transfer-Pricing Issues When transfer prices are based on actual cost, a supplying division often has no incentive to reduce cost. For example, a design change that would reduce the supplying division's manufacturing cost would benefit only downstream divisions if the transfer price is based on a markup over cost.
Required What can or should be done to provide the supplying division an incentive to reduce manufacturing costs when the transfer price is cost-based