L8

Question 1

Transfer price

Answer 1

price subunit charges another subunit within organization

Question 2

Intermediate products

Answer 2

products transferred between subunits in organization > processed or resold

Question 3

Dual pricing

Answer 3

use 2 transfer-pricing methods instead of 1

Question 4

Minimum transfer price

Answer 4

incremental costs per unit (until transfer) + opportunity costs selling team

Question 5

Multinational transfer pricing

Answer 5

tax implications such as profit, payroll, customs, tariffs and sales tax. Local regulations restrict transfer price options.

Question 6

Transfer pricing systems (3)

Answer 6

1) One-circle-system: 1 fiscal + operational price
2) Two-circle-system: different fiscal + operational price
3) Modified one-circle-system: basic structure calculation method for both fiscal + operational

Question 7

OECD guidelines

Answer 7

profit made because subunits are not independent should be included in the profits and taxed

Question 8

Transfer price methods (3)

method - description - evaluation

• goal congruence?
• subunit performance?
• motivates management?
• subunit authority?
• other?

Answer 8

1) Market-based transfer price = use price of similar publicly listed product
- goal congruence? yes if market is competitive
- subunit performance? yes if market is competitive
- motivates management? yes
- subunit authority? yes if market is competitive
- other? no

2) Cost-based transfer price = use price based on costs
- goal congruence? often
- subunit performance? difficult
- motivates management? yes if based on budget nog actual costs
- subunit authority? no
- other? yes easy to implement

3) Negotiated transfer price = decide whether to buy/sell inside/outside
- goal congruence? yes
- subunit performance? yes
- motivates management? yes
- subunit authority? yes
- other? yes takes barganing time