Transfer Pricing Flashcards
What is usually the most important criterion used by top management in establishing transfer pricing mechanisms?
Achieving goal congruence.
What is the general transfer pricing rule?
Transfer price per unit = additional outlay cost per unit + opportunity cost per unit.
Define “negotiated price”.
A price that is mutually agreeable to both the selling and purchasing unit.
What should the transfer price be when the selling division has excess production capacity?
The transfer price should be equal to the additional costs incurred to produce each unit.
Define “opportunity cost”.
The benefit that is forgone as a result of making one choice instead of an alternative (in transfer pricing, usually of selling internally rather than selling externally).
Define “transfer price”.
In intra-company sales, the product price charge by the selling division to the buying division.
What is the primary focus of international transfer price setting, other than goal congruence?
Minimizing income incidence to reduce tax liability.
In the context of transfer pricing, what is “dual pricing”?
Dual pricing is where the price for the buying and selling divisions are different as established by top management to achieve specific goals that differ between the buyer and seller.
