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Transfer Pricing

Chapter Outline

A.         Cost Management Challenges - Chapter 19 provides four cost vigilance challenges.

1.         What is the primary purpose of establishing a lurch price constitution?

2.         What are four methods for nonplusting careen prices?

3.         What is the significance of overabundance capacity in the dispatchring division, and what impact does that have on the enthral price?

4.         Why might income-tax laws affect the transfer-pricing policies of multinational companies?

B.          schooling Objectives - This chapter has five learning objectives.

1.         Chapter 19 explains the purpose and role of transfer pricing.

2.         The chapter explains how to use a general scotch rule to set an optimal transfer price.

3.         It explains how to base a transfer price on market prices, costs, or negotiations.

4.         It discusses the implications of transfer pricing in a multinational company.

5.         It discusses the effects of transfer pricing on element reporting.

C.         The chapter discusses the effects of transfer pricing on segment reporting. A transfer price represents the amount charged when whizz division sells goods or services to another division inwardly an organization. Transfer pricing is a challenge for cost managers because it represents an economic event that must be recorded in the business relationship system.



Deciding what the transfer price should be is the challenge. Transfers of goods and services deep down an organization do not impact the organizations profits as a whole organization. However, the purchase and selling divisions profits are affected by transfer prices charged. A high transfer price increases profits for the selling division and increases costs for the buying division.

If divisions are evaluated using ROI, residual income, or economic think of added, then the transfer price can affect the accomplishment of each division. This fact may motivate managers to pursue strategies for transfer pricing that are not congruent with organizational goals.

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