The transfer-pricing should be at Full-cost for all the departments

The transfer-pricing should be at Full-cost for all the departments, but at the same time they should act as profit centre & compete with the market for quality & price of service.
(3) If it were found one week later that the trade-in could be wholesaled for only $3000, which manager should take the loss?
Ans The loss should be booked on the used-car sales only.
But the management should be conscious that this will be discouraging for the team, hence the incentives has to be designed in such a way, so as to strike a balance between the price of used car & no. of used cars, sold.
(4) North country incurred a year-to-date loss of about $59000, before allocation of fixed costs on the wholesaling of used cars (see Note 2 in Exhibit 3). Wholesaling of used cars is theoretically supposed to be a break-even operation. Where do you think the problem lies?
Ans The problem lies with the used- car market. The external conditions were not favourable & hence the dept. couldn’t break even.
(5) Should profit centres be evaluated on gross profit or “full cost” profit?
Ans Profit centres has to be evaluated on Full-cost basis only, since financial viability of any profit centre is very important. They compete with the