Transfer Pricing

Question 1

Transfer pricing happens when…

Answer 1

Two or more legally independent but related companies transact with each other.

Question 2

What is related-party transaction

Answer 2

Entered into by the parent company with any of is related entities or entered into by any two or more of its related parties.

Question 3

Issue of transfer pricing occurs when…

Answer 3

Independent unit sells to or buys from another independent business segment within the same business conglomerate

Question 4

What are the 3 independent parties affected thereto in interdivisonal transaction

Answer 4

Selling division
Buying division
Parent company

Question 5

What is goal congruence?

Answer 5

Overall goal of the organization prevails over that of the divisional goals.

Question 6

What is suboptimazation?

Answer 6

Entity goal of the division prevails over the overall organization’s goals.

Question 7

What is Managerial effort?

Answer 7

Extent to which a manager attempts to accomplish a goal

Question 8

What is motivation?

Answer 8

Desire to attain a specific goal and the commitment to accomplish the goal.

Question 9

What is transfer price?

Answer 9

An artificial price used to record interdivisional exchange of goods or services and correspondingly, also used to evaluate divisional performance in line with the overall objective of the enterprise.

Question 10

Transfer price could be [5]

Answer 10

Market-based pricing
Cost-based pricing
Negotiated pricing
Arbitrary pricing
Dual pricing

Question 11

What is cost-based transfer price

Question 12

What is negotiated transfer price?

Question 13

What is arbitrary transfer price?

Question 14

What is dual pricing?

Question 15

Profit calculation for Seller [transfer pricing]

Answer 15

Transfer Price - Variable cost

Question 16

Profit calculation for buyer [transfer price]

Answer 16

Market Price - Transfer Price

Question 17

Profit calculation for Parent Company [transfer price]

Answer 17

Market price - Variable cost

Question 18

Minimum Transfer Price with excess

Answer 18

MTP = IC + OC - S

Question 19

Minimum Transfer Price without excess

Answer 19

MTP = SP + IC + OC - S

Question 20

What is multinational pricing

Answer 20

Applies when the transacting divisions are addressed or located in different countries of operations.

Question 21

Objective of holding company in multinational transfer pricing

Answer 21

Minimizing costs and maximizing profit

Question 22

Breakeven time

Answer 22

The point where the cumulatjve discounted cash inflows from investment equals the cost of investment.

Question 23

Product development time

Answer 23

Pertains to the period where the product is conceptualized, designed, approved, and the prototype made and readied for commercial production.

Question 24

Manufacturing cycle time

Answer 24

Period where the materials from suppliers are received, stocked, checked, processed, and prepared for deljvery to customers.

Question 25

Partial Productivity rate

Answer 25

Is a measure of output over process input

Question 26

Balanced scorecard

Answer 26

Uses multiple measures in determining as to whether a manager is achieving objectives at the expense of others.

Question 27

A typical scorecard includes? [4]

Answer 27

Learning and growth perspective Internal business processes perspectives Customer satisfaction perspectjves Financial perspectives