09 - Transfer Pricing A transfer price is the value placed...

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Transfer Pricing   A transfer price is the value placed on a transfer of goods or services between responsibility centres in organisations in which at least one of the two centres involved is a profit or investment centre
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Transfer Pricing   Invariably, where one or more of the centres are globally based, international tax issues can affect the transfer price  
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Auto Division A higher transfer price for batteries means . . . Greater profits for the Battery Division Battery Division The transfer price affects the profit measure for the Transfer Pricing
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The transfer price affects the profit measure for the selling division and the buying division lower profits for the Auto Division Auto Division Battery Division A higher transfer price for batteries means . . . Transfer Pricing
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Transfer pricing between responsibility centres in corporations occurs regardless of whether they are in the same or different geographic locations Multinationals face the same product & service transfer pricing issues that domestic organisations face when one SBU or subsidiary sells to another Transfer Pricing
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Transfer Pricing Transfer prices generally include the product cost plus a profit margin allowance The transfer price should equate to the price charged if the product or service were sold to external customers or purchased from external vendors
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Transfer Pricing Transfer pricing problems arise when responsibility centres disagree on what is market selling price Transfer pricing can be based on a number of cost bases with a profit margin on top or on external pricing less an appropriate discount
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Transfer Pricing When responsibility centres of a corporation trade with each other, they need to continually assess the sourcing and transfer price decisions Should the corporation produce or purchase & if produce, what price should be charged between responsibility centres?
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Transfer Pricing Transfer pricing mechanisms vary in complexity depending on the nature of the business Transfer pricing should be structured with goal congruence in mind One responsibility centre’s actions could undermine the profitability of the corporation as a whole
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Transfer Pricing Setting In setting transfer prices, goal congruence is dependant on: Competent managers focusing on long term profitability & who have the skills to structure & negotiate a fair price Belief that negotiated transfer prices are soundly based & fair
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Transfer Pricing Setting In setting transfer prices, goal congruence is dependant on: Establishing a price
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09 - Transfer Pricing A transfer price is the value placed...

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