There is seldom a single transfer price that simultaneously meets all the criteria we have discussed (achieving goal congruence, motivating managerial effort, evaluating the performance of subunits, and preserving their autonomy). As a result, some companies choose dual pricing, which uses two separate transfer-pricing methods to price each transfer from one subunit to another. An example of dual pricing arises when the selling division receives a full-cost-based price and the buying division pays the market price for the internally transferred products. Assume Horizon Petroleum purchases crude oil from Gulfmex in Matamoros at $79 per barrel. One way to record the journal entry for the transfer between the transportation division and the refining division is as follows:
The dual-pricing system promotes goal congruence because it makes the refining division no worse off if it purchases the crude oil from the transportation division rather than from the external supplier at $85 per barrel. The transportation division receives a corporate subsidy. As a result, the operating income for Horizon Petroleum as a whole under dual pricing is less than the sum of the operating incomes of the divisions.
Dual pricing is not widely used. One concern with dual pricing is that it leads to disputes about which price should be used when computing the taxable income of subunits located in different tax jurisdictions, such as in our example, where the transportation division is taxed in Mexico while the refining division is taxed in the United States. A second concern is that dual pricing insulates managers from the realities of the marketplace because costs, not market prices, affect the revenues of the supplying division.