Module 14 - Transfer Pricing Flashcards
1
Q
Transfer price
A
price paid by one division to purchase goods or services from another
2
Q
What must be considered when setting the transfer price
A
- divisional autonomy
- allow profits
- group focussed
- clear, understandable and transparent
- arm’s length
3
Q
What may the transfer price based on
A
- market price
- marginal cost
- full cost
- cost plus margin
- negotiated price
4
Q
Which cost - standard or actual - should be used in transfer pricing?
A
Standard cost
5
Q
How do you calculate minimum acceptable transfer price?
A
Lost contribution method - the contribution lost by selling internally must be met by the internal orders and then add on the variable cost
6
Q
International transfer pricing objectives?
A
- tax planning
- less foreign exchange risks
- better competitive position
- better government relations
