Lesson-7-Transfer-Pricing-英文管理会计课件-Management-Acco

1TransferpricingLESSON71TransferpricingLESSON72Introductionoflesson7Lesson7focusesondecentralizationandtheimpactoftransferpricingondecisionmakingandcostswithinorganizations.Thereviewmaterialforthelessonasksyoutoapplyyourunderstandingtodeterminetransferpricesusingarangeofpricingmeasures.2Introductionoflesson7Lesso3Lesson6TopicsoutlineOrganizationalstructureanddecentralizationTransferpricingpoliciesTransferpricingmeasuresDeterminingminimumtransferpriceMultinationalcompaniesandtransferpricing3Lesson6TopicsoutlineOrg4Topic1:

Organizationalstructure

anddecentralizationLEARNINGOBJECTIVE

Describethebenefitsanddrawbacksofdecentralization.RequiredreadingChapter22,pages625-627,from“OrganizationStructureandDecentralization”upto“TransferPricing”4Topic1:Organizationalstruc5Decentralizationvs.CentralizationTopic1:OrganizationalstructureanddecentralizationIncentralizeddecisionmaking,decisionsaremadeattheverytoplevel,andlower-levelmanagersarechargedwithimplementingthesedecisions.Decentralizationisthepracticeofdelegatingdecision-makingauthoritytothelower-levels.Autonomyisthedegreeoffreedomtomakedecisions.Thegreaterthefreedom,thegreatertheautonomy5Decentralizationvs.Central6IllustrateCentralizationVs.DecentralizationTopic1:Organizationalstructureanddecentralization6IllustrateCentralizationVs.7IllustrationofPepsiCo'sDecentralizedDivisionsTopic1:Organizationalstructureanddecentralization7IllustrationofPepsiCo'sDec8Decentralizationvs.CentralizationTotaldecentralizationmeansminimumconstraintsandmaximumfreedomformanagersatthelowestlevelsofanorganizationtomakedecisionsTotalcentralizationmeansmaximumconstraintsandminimumfreedomformanagersatthelowestlevelsofanorganizationtomakedecisionsCompaniesstructuresgenerallyfallsomewhereinbetweenthesetwoextremes,aseachhasbenefitsandcosts.Structurechosencostvs.benefitanalysisTopic1:Organizationalstructureanddecentralization8Decentralizationvs.Central9BenefitsofDecentralizationCreatesgreaterresponsivenesstolocalneedsLeadstogainsfromfasterdecisionmakingIncreasesmotivationofsubunitmanagersAssistsmanagementdevelopmentandlearningSharpensthefocusofsubunitmanagersTopic1:Organizationalstructureanddecentralization9BenefitsofDecentralization10CostsofDecentralizationLeadstoSuboptimalDecisionMakingariseswhenadecision’sbenefittoonesubunitismorethanoffsetbythecostsorlossofbenefitstotheorganizationasawhole.AlsocalledIncongruentDecisionMakingFocusesmanger’sattentiononthesubunitratherthanthecompanyasawholeIncreasescostsofgatheringinformationResultsinduplicationofactivitiesTopic1:Organizationalstructureanddecentralization10CostsofDecentralizationLe11MultinationalFirmsMultinationalfirmscompaniesthatoperateinmultiplecountries–areoftendecentralizedbecausecentralizedcontrolofacompanywithsubunitsaroundtheworldisoftenphysicallyandpracticallyimpossibleTopic1:Organizationalstructureanddecentralization11MultinationalFirmsMultinati12DecentralizationandMultinationalFirmsDecentralizationenablesmanagersindifferentcountriestomakedecisionsthatexploittheirknowledgeoflocalbusinessandpoliticalconditionsandtodealwithuncertaintiesintheirindividualenvironmentsBiggestDrawbacktoInternationalDecentralization:LossorlackofcontrolTopic1:Organizationalstructureanddecentralization12DecentralizationandMultin13ChoicesAboutResponsibilityCentersRegardlessofthedegreeofdecentralization,managementcontrolsystemsusesoneoramixofthefourtypesofresponsibilitycenters:CostCenterRevenueCenterProfitCenterInvestmentCenterTheobjectiveinidentifyingthesecentersistomeasuretheirperformancemoreeffectivelyandmorefairly.Topic1:Organizationalstructureanddecentralization13ChoicesAboutResponsibilit14Topic2:

TransferpricingpoliciesLEARNINGOBJECTIVES

Determinetheimpactoftransferpricingpoliciesonprofits.RequiredreadingChapter22,pages627-630,from“TransferPricing”upto“Market-BasedTransferPrices”14Topic2:Transferpricingpo15TransferPricingTransferPriceneededwhensegmentswithinthesamecompanysellproductsorservicestooneanother.thepriceonesubunit(departmentordivision)chargesforaproductorservicesuppliedtoanothersubunitofthesameorganizationManagementcontrolsystemsusetransferpricestocoordinatetheactionsofsubunitsandtoevaluatetheirperformanceTopic2:

Transferpricingpolicies15TransferPricingTransferPr16TransferPricingThetransferpricecreatesrevenuesforthesellingsubunitandpurchasecostsforthebuyingsubunitaffectingeachsubunit’soperatingincomeIntermediateProducttheproductorservicetransferredbetweensubunitsofanorganizationTopic2:

Transferpricingpolicies16TransferPricingThetransfer17ThreeTransferPricingMethodsMarket-basedTransferPricessetsthepriceatwhichtheproducttransferredcouldbesoldtooutsidebuyers.Cost-basedTransferPricesusesavarietyofcostconceptsforsettingthetransferprice.NegotiatedTransferPricesallowsdecentralizedmanagerstoagree(negotiate)amongthemselves.Topic2:

Transferpricingpolicies_17ThreeTransferPricingMetho181.Market-basedTransferPricesTopmanagementchoosestousethepriceofsimilarproductorservicethatispubliclyavailable.Sourcesofpricesincludetradeassociations,competitors,etc.Topic2:

Transferpricingpolicies_Market-based181.Market-basedTransferPri19Market-basedTransferPricesLeadtooptimaldecision-makingwhenthreeconditionsaresatisfied:ThemarketfortheintermediateproductisperfectlycompetitiveInterdependenciesofsubunitsareminimalTherearenoadditionalcostsorbenefitstothecompanyasawholefrombuyingorsellingintheexternalmarketinsteadoftransactinginternallyTopic2:

Transferpricingpolicies_Market-based19Market-basedTransferPrices20Market-basedTransferPricesAperfectlycompetitivemarketexistswhenthereisahomogeneousproductwithbuyingpricesequaltosellingpricesandnoindividualbuyerorsellercanaffectthosepricesbytheirownactionsAllowsafirmtoachievegoalcongruence,motivatingmanagementeffort,subunitperformanceevaluations,andsubunitautonomyPerhapsshouldnotbeusedifthemarketiscurrentlyinastateof“distresspricing”Topic2:

Transferpricingpolicies_Market-based20Market-basedTransferPrices21Market-basedtransferpricesAmarketpriceapproachworksbestwhentheproductorserviceissoldinitspresentformtooutsidecustomersandthesellingdivisionhasnoidlecapacity.Market-basedtransferpricingpoliciesarerecommendedbytextbooks,butarenotpreferredwhenagencytheoryandtransactionscostsareconsidered.Topic2:

Transferpricingpolicies_Market-based21Market-basedtransferprices22Market-basedtransferpricesAmarketpriceapproachdoesnotworkwellwhenthesellingdivisionhasidlecapacity.Ifafirmhasbeenproducinganintermediategoodinternallyforsometime,thenitsmarketpriceisnottobeagoodproxyforthefirm’sopportunitycostofproducingit.Afirmmaybeproducinginternallytocontrolquality,timelydeliveriesandtradesecrets.Topic2:

Transferpricingpolicies_Market-based22Market-basedtransferprices23Transfer

Price

at

MarketIfthereisanoutsidemarketfortheproductbeingtransferredbetweendivisions,thetransferpriceshouldbebasedonthemarketpriceoftheproduct.However,thebuyerandsellermustbeallowedtogooutsideifdoingsowouldcreateabetterprofit.Topic2:

Transferpricingpolicies_Market-based23TransferPriceatMarketIft242.Cost-basedTransferPricesUsefulwhenmarketpricesareunavailable,inappropriate,ortoocostlytoobtain.Topmanagementchoosesatransferpricebasedonthecostsofproducingtheintermediateproduct.Examplesinclude:VariableProductionCostsVariableandFixedProductionCostsFullCosts(includinglife-cyclecosts)Oneoftheabove,plussomemarkupTopic2:

Transferpricingpolicies_Cost-based242.Cost-basedTransferPrice25Cost-basedTransferPrices

AlternativesProratingthedifferencebetweenthemaximumandminimumcost-basedtransferpricesDual-Pricingusingtwoseparatetransfer-pricingmethodstopriceeachtransferfromonesubunittoanother.Example:sellingdivisionreceivesfullcostpricing,andthebuyingdivisionpaysmarketpricingTopic2:

Transferpricingpolicies_Cost-based25Cost-basedTransferPrices

263.NegotiatedTransferPricesOccasionally,subunitsofafirmarefreetonegotiatethetransferpricebetweenthemselvesandthentodecidewhethertobuyandsellinternallyordealwithexternalpartiesMayormaynotbearanyresemblancetocostormarketdataOftenusedwhenmarketpricesarevolatileRepresenttheoutcomeofabargainingprocessbetweenthesellingandbuyingsubunitsTopic2:

Transferpricingpolicies_Negotiated263.NegotiatedTransferPrice27ReasonsfornegotiatingtransferpricesTheypreservetheautonomyofthedivisions,whichisconsistentwiththespiritofdecentralization.Themanagersnegotiatingthetransferpricearelikelytohavemuchbetterinformationaboutthepotentialcostsandbenefitsofthetransferthanothersinthecompany.Ifatransferwithinacompanywouldresultinhigheroverallprofitsforthecompany,thereisalwaysarangeoftransferpriceswithinwhichboththesellingandbuyingdivisionswouldhavehigherprofitsiftheyagreetothetransfer.Topic2:

Transferpricingpolicies_Negotiated27Reasonsfornegotiatingtran28Whenimperfectionsexistincompetitivemarketsfortheintermediateproduct,marketpricemaynolongerbesuitable.NegotiatedTransferPricesTopic2:

Transferpricingpolicies_Negotiated28Whenimperfectionsexistin29Inthiscase,negotiatedtransferpricesmaybeapracticalalternative.Opportunitycostscanbeusedtodefinetheboundariesofthenegotiationset.NegotiatedTransferPricesTopic2:

Transferpricingpolicies_Negotiated29Inthiscase,negotiatedtra30Adivisionmanagerwhohasprivateinformationmaytakeadvantageofanotherdivisionalmanager.Performancemeasuresmaybedistortedbythenegotiatedskillsofmanagers.Negotiationcanconsumeconsiderabletimeandresources.DisadvantagesofNegotiatedTransferPricesTopic2:

Transferpricingpolicies_Negotiated30Adivisionmanagerwhohasp31DisadvantageofNegotiatedTransferPricesIfmanagersarepittedagainsteachotherratherthanagainsttheirpastperformanceorreasonablebenchmarks,anoncooperativeatmosphereisalmostguaranteed.Giventhedisputesthatoftenaccompanythenegotiationprocess,mostcompaniesrelyonsomeothermeansofsettingtransferprices.Topic2:

Transferpricingpolicies_Negotiated31DisadvantageofNegotiatedT32Despitethedisadvantages,negotiatedpricetransferpricesoffersomehopeofcomplyingwiththethreecriteriaofgoalcongruence,autonomy,andaccurateperformanceevaluation.Topic2:

Transferpricingpolicies_Negotiated32Despitethedisadvantages,n33MaintaingoalcongruenceThefundamentalobjectiveinsettingtransferpricesistomotivatemanagerstoactinthebestinterestsoftheoverallcompany.Topic2:Transferpricingpolicies33MaintaingoalcongruenceThe34ComparisonofMethodsAchievesGoalCongruenceMarketPrice:Yes,ifmarketscompetitiveCost-Based:Often,butnotalwaysNegotiated:YesTopic2:Transferpricingpolicies34ComparisonofMethodsAchieve35ComparisonofMethodsUsefulforEvaluatingSubunitPerformanceMarketPrice:Yes,ifmarketscompetitiveCost-Based:Difficult,unlesstransferpriceexceedsfullcostNegotiated:YesTopic2:Transferpricingpolicies35ComparisonofMethodsUseful36ComparisonofMethodsMotivatesManagementEffortMarketPrice:YesCost-Based:Yes,ifbasedonbudgetedcosts;lessincentiveifbasedonactualcostNegotiated:YesTopic2:Transferpricingpolicies36ComparisonofMethodsMotivat37ComparisonofMethodsPreservesSubunitAutonomyMarketPrice:Yes,ifmarketscompetitiveCost-Based:No,itisrulebasedNegotiated:YesTopic2:Transferpricingpolicies37ComparisonofMethodsPreserv38ComparisonofMethodsOtherFactorsMarketPrice:NomarketmayexistCost-Based:Usefulfordeterminingfull-cost;easytoimplementNegotiated:BargainingtakestimeandmayneedtobereviewedTopic2:Transferpricingpolicies38ComparisonofMethodsOtherF39Topic3:

TransferpricingmeasuresLEARNINGOBJECTIVEDeterminetransferpricesusingmarket-based,cost-based,andnegotiatedtransferpricingmeasures.RequiredreadingChapter22,pages630-630from“Market-BasedTransferPrices”upto“NegotiatedTransferPrices”39Topic3:Transferpricingme40TransferPricingIllustration(P801)Topic3:

TransferpricingmeasuresObtainedcrudeoilsuppliedinMalamorosTransportationDivisionCapacity:40,000barrelsofcrudeoilperdayRefiningDivisionCapacity:30,000barrelsofcrudeoilperdayCrudeoiltransferred10,000barrelsofcrudeoilperdayAnotherproducersuppliedtoHoustonrefinery20,000barrelsofcrudeoilperdayGasolinesoldtoexternalAssume3barrelsofcrudeoiltoyieldonbarrelofgasoline40TransferPricingIllustratio41TransferPricingIllustrationTopic3:

TransferpricingmeasuresContractpriceperbarrelofcrudeoilsuppliedinMalamoros$72TransportationDivisionVariablecost $1Fixedcost 3Fullcostperbarrel$4ofcrudeoilRefiningDivisionVariablecost $1Fixedcost 3Fullcostperbarrel$4ofgasolineCrudeoiltransferredMarketpricepriceperbarrelofcrudeoilsuppliedtoHoustonrefinery$85$19041TransferPricingIllustratio42TransferPricingIllustrationTopic3:

TransferpricingmeasuresBarrelsofcrudeoiltransferred= 100Barrelsofgasolinesold= 5079.8=(72+1+3)×1.0542TransferPricingIllustratio43TransferPricingIllustrationTopic3:

TransferpricingmeasuresBarrelsofcrudeoiltransferred= 100Barrelsofgasolinesold= 5043TransferPricingIllustratio44Topic4:

Determiningminimum

transferpriceLEARNINGOBJECTIVEDeterminetheminimumtransferpriceundervaryinglevelsofproductioncapacity.RequiredreadingChapter22,pages636-638,“AGeneralGuidelineforTransfer-PricingSituations”44Topic4:Determiningminimum45MinimumTransferPriceIfatransferwithinacompanywouldresultinhigheroverallprofitsforthecompany,thereisalwaysarangeoftransferpriceswithinwhichboththesellingandbuyingdivisionswouldhavehigherprofitsiftheyagreetothetransfer.Topic4:DeterminingminimumtransferpriceUpperlimitisdeterminedbythebuyingdivision.Lowerlimitisdeterminedbythesellingdivision.RangeofAcceptableTransferPrices45MinimumTransferPriceIfat46MinimumTransferPriceTheminimumtransferpriceinmanysituationsshouldbe:IncrementalcostistheadditionalcostofproducingandtransferringtheproductorserviceOpportunitycostisthemaximumcontributionmarginforgonebythesellingsubunitiftheproductorserviceistransferredinternallyTopic4:Determiningminimumtransferprice46MinimumTransferPriceThemi47VariableCostperUnit$73MarketPriceperUnit$85FullCostperUnit$76RangeofNegotiatedPriceTransferPricesOpportunitycostCostperUnit$1Topic4:DeterminingminimumtransferpriceMinimumTransferPrices47VariableCostMarketPriceFul48TransferpricingwithperfectinformationIntheperfectinformationcase,eachmanagerinthefirmknowsthefollowingaboutanyparticularexchangebetweentwodivisions:Eachdivision'smarginalcostsofproduction,whichareusuallydefinedasvariablecosts.Eachdivision'sopportunitycosts,whichdependonwhetherexcesscapacityexists.Topic4:Determiningminimumtransferprice48Transferpricingwithperfec49TransferpricingwithasymmetricinformationWithasymmetryofinformation,lowerlevelmanagershaveincentivestosetthetransferpriceabovethevariablecosttoincreasethesellingdivision’sprofits.Thiscouldleadtolowerthanoptimalproductionlevels,andlowerprofitforthefirm.Thesellingdivisionhasthemonopolyrightsininformation,andcouldbehavelikeamonopolistbyraisingpricesandrestrictingoutput.Topic4:Determiningminimumtransferprice49Transferpricingwithasymme50Computerillustration6-1:TransferpricingandinformationasymmetryTopic4:Determiningminimumtransferprice Mudderville(seller) Cobb(Buyer)Fixedcosrs €300/day €200/dayVariablecosts 0.2/unit €0.40/unitQuantitysold

Pricepertruck

Totalrevenue100 €5.00 €500.00200 €4.50 €900.00300 €3.75 €1,125.00400 €3.25 €1,300.00500 €3.00 €1,500.00600 €2.60 €1,560.00700 €2.49 €1,743.00800 €2.38 €1,904.00Price-quantityrelationshipforthetoytruck:50Computerillustration6-1:T51Computerillustration6-1:TransferpricingandinformationasymmetryVariablecost+Fixedcost+Profit=0.20+300/200+0.10=0.20+1.50+0.10Topic4:Determiningminimumtransferprice51Computerillustration6-1:T52Computerillustration6-1:TransferpricingandinformationasymmetryNegotiatedTopic4:Determiningminimumtransferprice52Computerillustration6-1:T53Computerillustration6-1:TransferpricingandinformationasymmetryTopic4:Determiningminimumtransferprice53Computerillustration6-1:T54TransferpricingwithasymmetricinformationCompanyprofitsaremaximizedat$924when800finishedunitsareproduced.Withatransferpriceof$1.90,theBuyingDivisionismotivatedtomaximizeprofits($240)atalevelof200units,notatthe800unitsthatisoptimaltothefirm.TheSellingDivisionmanagestoearnprofitsof$40,butthefirmisunderproducing,andthereisaresiduallosstotheownersof$644.Thisisthedifferenceinthefirm'sprofitbetweenthesub-optimalproductiondecisionof200unitsofoutput($280)andtheprofitmaximizingdecisionat800unitsofoutput($924).Topic4:Determiningminimumtransferprice54Transferpricingwithasymme55Topic5:

Multinationalcompanies

andtransferpricingLEARNINGOBJECTIVESDescribetransferpricingissuesfacingmultinationalcorporations.RequiredreadingChapter22,pages638-640,“MultinationalTransferPricingandTaxConsiderations”55Topic5:Multinationalcompa56MultinationalTransferPricingand

TaxConsiderationsTransferpricesoftenhavetaximplicationsTaxfactorsincludeincometaxes,payrolltaxes,customsduties,tariffs,salestaxes,value-addedtaxes,environment-relatedtaxesandothergovernmentleviesTopic5:Multinationalcompaniesandtransferpricing56MultinationalTransferPrici57MultinationalTransferPricingand

TaxConsiderationsSection482oftheUSInternalRevenueCodegovernstaxationofmultinationaltransferpricingSection482requiresthattransferpricesbetweenacompanyanditsforeigndivisionorsubsidiaryequalthepricethatwouldbechargedbyanunrelatedthirdpartyinacomparabletransactionTransferpricecouldbemarket-basedor“cost-plus”basedTopic5:Multinationalcompaniesandtransferpricing57MultinationalTransferPrici58MultinationalTransferPricing:

OtherfactorsCurrencyrestrictionsSomecountrieslimittheamountand/ortimingoftransferringaccumulatedprofits.RiskofexpropriationManagersshouldconsiderthelikelihoodthatlocalgovernmentmighttakeownershipandcontroloverforeignsubsidiaries.CountryriskManagersshouldalsoconsiderthelevelofeconomicriskofthecountryinwhichthesubsidiariesarelocated.Topic5:Multinationalcompaniesandtransferpricing58MultinationalTransferPrici59EndofLesson7Homework:22-19(p644),22-22(p645)59EndofLesson7Homework:2260TransferpricingLESSON71TransferpricingLESSON761Introductionoflesson7Lesson7focusesondecentralizationandtheimpactoftransferpricingondecisionmakingandcostswithinorganizations.Thereviewmaterialforthelessonasksyoutoapplyyourunderstandingtodeterminetransferpricesusingarangeofpricingmeasures.2Introductionoflesson7Lesso62Lesson6TopicsoutlineOrganizationalstructureanddecentralizationTransferpricingpoliciesTransferpricingmeasuresDeterminingminimumtransferpriceMultinationalcompaniesandtransferpricing3Lesson6TopicsoutlineOrg63Topic1:

Organizationalstructure

anddecentralizationLEARNINGOBJECTIVE

Describethebenefitsanddrawbacksofdecentralization.RequiredreadingChapter22,pages625-627,from“OrganizationStructureandDecentralization”upto“TransferPricing”4Topic1:Organizationalstruc64Decentralizationvs.CentralizationTopic1:OrganizationalstructureanddecentralizationIncentralizeddecisionmaking,decisionsaremadeattheverytoplevel,andlower-levelmanagersarechargedwithimplementingthesedecisions.Decentralizationisthepracticeofdelegatingdecision-makingauthoritytothelower-levels.Autonomyisthedegreeoffreedomtomakedecisions.Thegreaterthefreedom,thegreatertheautonomy5Decentralizationvs.Central65IllustrateCentralizationVs.DecentralizationTopic1:Organizationalstructureanddecentralization6IllustrateCentralizationVs.66IllustrationofPepsiCo'sDecentralizedDivisionsTopic1:Organizationalstructureanddecentralization7IllustrationofPepsiCo'sDec67Decentralizationvs.CentralizationTotaldecentralizationmeansminimumconstraintsandmaximumfreedomformanagersatthelowestlevelsofanorganizationtomakedecisionsTotalcentralizationmeansmaximumconstraintsandminimumfreedomformanagersatthelowestlevelsofanorganizationtomakedecisionsCompaniesstructuresgenerallyfallsomewhereinbetweenthesetwoextremes,aseachhasbenefitsandcosts.Structurechosencostvs.benefitanalysisTopic1:Organizationalstructureanddecentralization8Decentralizationvs.Central68BenefitsofDecentralizationCreatesgreaterresponsivenesstolocalneedsLeadstogainsfromfasterdecisionmakingIncreasesmotivationofsubunitmanagersAssistsmanagementdevelopmentandlearningSharpensthefocusofsubunitmanagersTopic1:Organizationalstructureanddecentralization9BenefitsofDecentralization69CostsofDecentralizationLeadstoSuboptimalDecisionMakingariseswhenadecision’sbenefittoonesubunitismorethanoffsetbythecostsorlossofbenefitstotheorganizationasawhole.AlsocalledIncongruentDecisionMakingFocusesmanger’sattentiononthesubunitratherthanthecompanyasawholeIncreasescostsofgatheringinformationResultsinduplicationofactivitiesTopic1:Organizationalstructureanddecentralization10CostsofDecentralizationLe70MultinationalFirmsMultinationalfirmscompaniesthatoperateinmultiplecountries–areoftendecentralizedbecausecentralizedcontrolofacompanywithsubunitsaroundtheworldisoftenphysicallyandpracticallyimpossibleTopic1:Organizationalstructureanddecentralization11MultinationalFirmsMultinati71DecentralizationandMultinationalFirmsDecentralizationenablesmanagersindifferentcountriestomakedecisionsthatexploittheirknowledgeoflocalbusinessandpoliticalconditionsandtodealwithuncertaintiesintheirindividualenvironmentsBiggestDrawbacktoInternationalDecentralization:LossorlackofcontrolTopic1:Organizationalstructureanddecentralization12DecentralizationandMultin72ChoicesAboutResponsibilityCentersRegardlessofthedegreeofdecentralization,managementcontrolsystemsusesoneoramixofthefourtypesofresponsibilitycenters:CostCenterRevenueCenterProfitCenterInvestmentCenterTheobjectiveinidentifyingthesecentersistomeasuretheirperformancemoreeffectivelyandmorefairly.Topic1:Organizationalstructureanddecentralization13ChoicesAboutResponsibilit73Topic2:

TransferpricingpoliciesLEARNINGOBJECTIVES

Determinetheimpactoftransferpricingpoliciesonprofits.RequiredreadingChapter22,pages627-630,from“TransferPricing”upto“Market-BasedTransferPrices”14Topic2:Transferpricingpo74TransferPricingTransferPriceneededwhensegmentswithinthesamecompanysellproductsorservicestooneanother.thepriceonesubunit(departmentordivision)chargesforaproductorservicesuppliedtoanothersubunitofthesameorganizationManagementcontrolsystemsusetransferpricestocoordinatetheactionsofsubunitsandtoevaluatetheirperformanceTopic2:

Transferpricingpolicies15TransferPricingTransferPr75TransferPricingThetransferpricecreatesrevenuesforthesellingsubunitandpurchasecostsforthebuyingsubunitaffectingeachsubunit’soperatingincomeIntermediateProducttheproductorservicetransferredbetweensubunitsofanorganizationTopic2:

Transferpricingpolicies16TransferPricingThetransfer76ThreeTransferPricingMethodsMarket-basedTransferPricessetsthepriceatwhichtheproducttransferredcouldbesoldtooutsidebuyers.Cost-basedTransferPricesusesavarietyofcostconceptsforsettingthetransferprice.NegotiatedTransferPricesallowsdecentralizedmanagerstoagree(negotiate)amongthemselves.Topic2:

Transferpricingpolicies_17ThreeTransferPricingMetho771.Market-basedTransferPricesTopmanagementchoosestousethepriceofsimilarproductorservicethatispubliclyavailable.Sourcesofpricesincludetradeassociations,competitors,etc.Topic2:

Transferpricingpolicies_Market-based181.Market-basedTransferPri78Market-basedTransferPricesLeadtooptimaldecision-makingwhenthreeconditionsaresatisfied:ThemarketfortheintermediateproductisperfectlycompetitiveInterdependenciesofsubunitsareminimalTherearenoadditionalcostsorbenefitstothecompanyasawholefrombuyingorsellingintheexternalmarketinsteadoftransactinginternallyTopic2:

Transferpricingpolicies_Market-based19Market-basedTransferPrices79Market-basedTransferPricesAperfectlycompetitivemarketex