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Alternatives 1. Cost Based Transfer Price Maintain the status quo within the company. All cost methods require that standard costs be used; therefore each division is encouraged to meet standard cost levels, instead of working around actual costs. This will increase goal congruence. Currently, the price Southern is charging is based on the market but they are running under capacity and had excess inventory. Therefore, Thompson is charging market price even though he is running under capacity. If Southern's VC = 60% then the 40% represents OH and profit. To prevent conflicts in the future it must be clear that variable costs of one division are not actually fixed costs for the whole company. Thompson's VC = $400 some of that could be FC for the whole company. (Align this alternative with Rob's Analysis). Advantages: increases goal congruence, requires that the vice president perform a routine cost analysis, therefore requires little resources. Southern...

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