Week 10

Question 1

65How is the minimum transfer price calculated?

Answer 1

The minimum transfer price is usually the incremental cost of producing and transferring the product or service

Question 2

How is the maximum transfer price determined in a transfer pricing scenario?

Answer 2

The maximum transfer price is generally the net marginal revenue of the buying division

Question 3

How do you calculate profit for an internal transfer when selling between divisions?

Answer 3

Profit is calculated by subtracting total variable costs (including any transfer price) from the revenue generated by the selling division

Question 4

How is the buying division’s profit affected in transfer pricing?

Answer 4

The buying division’s profit is calculated as its net revenue (selling price minus variable costs of further processing) minus the transfer price

Question 5

What is Market-Based Transfer Pricing?

Answer 5

This is when the transfer price is set based on the market price for the product, useful when external market prices are available​

Question 6

Describe Cost-Based Transfer Pricing

Answer 6

Cost-based transfer pricing sets the transfer price based on production costs, including options like variable or full costs, often with an added markup​

Question 7

What is Hybrid Pricing in transfer pricing?

Answer 7

Hybrid pricing combines elements of market-based and cost-based approaches, such as negotiated prices or proration between minimum and maximum costs​