Transfer Pricing

TABLE OF CONTENTS

Title Page

Table of Contents

Executive Summary 2

Introduction . 5

Body - Background 6

Transfers . 7

Decentralisation . 10

Negotiated Transfer Price 11

Recommendation . 13

Conclusion . 13

References . 16

A Critical Review And Assessment Of The Possible Transfer Pricing Approaches Which Could Be Adopted As Part Of Their Proposed System Divisional Performance Measurement (executive summary and table of contents

EXECUTIVE SUMMARY

Transfer pricingis very popular in organisations as many persons had not expected . Also , the inter

-company sales as well as the allocation of inter branch or subsidiary costs that bill one department for its services rendered and products supplied to another department are discussed often are at war ' on which transfer price to put into place

Background

Globetrotter PLC is gripped as to which among three alternatives to implement . There will be a discussion between the four divisions on which transfer pricing will be implemented . In the absence of tax rate differences between countries (Isikawa ,1997 pp .395-424 ) like inter branch locations that include the USA , BRAZIL , MALAYSIA , RETAIL OUTLETS divisions , the alternative transfer prices are (a ) production department 's marginal cost (b ) production department 's marginal cost plus a small profit and lastly (c ) the outside market price

Transfers

Also , the United States division may want to buy ' shoes from the Brazil division and Malaysia Division at cost . Meaning , both the Brazil branch and the Malaysia Branch will bill the United States production branch on the all three manufacturing facilities must invoice the commercial division (outlets

Decentralisation

Decentralisation bring many benefits . For one , decentralisation helps overcome the limited data processing capacity of the head office Decentralisation also reduces control costs and expenses . It also gives many incentives to the subsidiaries or branches and many other advantages

Negotiated Transfer Prices

In the article The effect of Framing and Compensation Structure on Sellers ' Negotiated Transfer Price , the negotiation between the buyer ' and the seller ' will surely affect the selling division 's profits as well as the buying ' outlets or divisions profits . Thus , one or both of the parties to the transfer price negotiation will sometimes use whatever pushing and pulling even to the point of pulling some strings to get the better provisions in their contract price contract meetings Recommendation

As manager of one of the Divisions , it is highly recommended that alternative C be chosen . For , this alternative allows the United States Brazil and Malaysia production divisions to sell their finished goods at the market price not only to the outlets but also the interest parties outside the company

Conclusion

The final decision then will be decided in terms of over -all company goals . For the outlets could be a part of the entire Globetrotter PLC company , In this case , then the three production divisions has to think that they have to think not only of their self survival but the survival of their companions too within the organisation- the outlets (Arnold 2005

In terms of Advantage , transfer price alternative A gives the best advantage to the outlets...