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Unformatted text preview: 1 Ch.12 ADM2341 Man. Acct. Segment Reporting TP Ch. 12 Segment Reporting: Choosing a Transfer Price • if external market is competitive, transfer price should be market-based to keep internal parties competitive and reduce congruence and autonomy problems Buy Outside? Sell Outside? Division Ecks Sell Inside? Division Zed 2 Ch.12 ADM2341 Man. Acct. Segment Reporting TP Market based price is based on: Minimum Transfer Price = Variable Cost plus Opportunity Cost In shorthand: Min TP = VC + Lost CM (on outside sales) Max Transfer Price = Market Price 3 Ch.12 ADM2341 Man. Acct. Segment Reporting TP Cost Based Prices Transfer Price = Standard Variable Cost plus Budgeted Fixed Cost per unit plus Markup Problems: 1. price looks variable to the buyer but is variable and fixed for the seller. ". incentive to overstate costs by the seller *** Most transfer prices are negotiated whether cost or market. 4 Ch.12 ADM2341 Man. Acct. Segment Reporting TP Example: Barker Company: Two Divisions Battery Division...
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- Winter '07
- Marketing, Battery Division