Answer and Explanation:
The manager of division A has the advantage of always selling at a profit since his department is positioned to always sell at profit to division B. However, selling at a transfer price to another department has the tendency to bring an incoherence of operations and decisions in the organization as a whole. If transfer price is high, it is possible that employees of department B may be demotivated as the high costs may negate operations and therefore look bad on their performance.
