14 - Transfer Pricing Flashcards
1
Q
what is the transfer price?
A
the price at which a g/s is sold from one div to another
2
Q
what are the objectives of transfer pricing?
A
- goal congruence (acheiving l/t value max)
- PE (creates fairness for eval, cost control)
- preserves autonomy of mgrs
3
Q
what is the minimum TP?
A
the least that the supplying div will accept for the product
4
Q
what does the minimum TP usually consist of?
A
amt to cover VCs + opportunity cost of not selling ext
5
Q
what is the maximum TP?
A
most that the receiving div will pay
6
Q
what does the maximum TP usually consist of?
A
net marginal revenue
(SP - VCs excluding the supplied product)
7
Q
what are the advantages to the RC approach to TP?
A
- takes opp cost into account – goal congruence
- motivates div interaction
- gives a range of TPs
8
Q
what are the disadvantages of the RC approach to TP?
A
- short-term focus
- technically complex
- impacts autonomy if TP is handed down
