10014_041210_18 - Market price Outside purchase price B...

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Transfer Pricing High price is always set by the buyer (outside purchase price) Buyer will compare to the “transfer price” offered by the internal “seller” Low price is always set by the seller o Excess capacity = VC o Selling 100% of production capacity to outside customers = market price Model: Managers use to give pushes to segment managers to make right decisions A. Seller at capacity Buyer Low-----------------------------------------------------------------------------High
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Unformatted text preview: Market price Outside purchase price B. Seller at excess capacity Buyer Low-----------------------------------------------------------------------------High VC Outside purchase price Example: (Worksheet) 1. Who’s the buyer? Who’s the seller? • Buyer = Division B • Seller = Division A 2. How to make decision? • Use seller’s production capacity • Use buyer’s external purchase price...
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