Agenda – Submit term projects to TURNITIN ASAP – Assignment #2 due April 1st 1159pm • List the coauthor’s name in the subject line. • Teaching Evaluation • Transfer pricing (cont.) – Stanco Inc. • Review chapters 11 and 12 & the practice final – Practice Q1 and Q2 • Review chapters 8 and 9 and the practice final – Practice Q3 and Q4 ACTG 2020 Week 11 1 • Online Course Evaluations (ONCE)/ & Seymour Schulich Teaching Excellence Awards (Schulich TEA) – TEA: http://schulich.yorku.ca/tea. – ONCE: http://courseevaluations.yorku.ca • • • • ACTG 2020 2020 class: Sylvia Hsu 2020 R (2:30pm): Lab, Marisa Morriello 2020 V (8:30am): Lab, Marisa Morriello 2020 W (11:30am): Lab, Iva Charlopova Week 11 2 Stanco Inc. • Groups in the Right: …show more content…
3. Using full cost as a transfer price and can lead to ACTG 2020 Week 11 suboptimization. WHY?? 10 Negotiated Transfer Price AA system system where where transfer transfer prices prices are are arrived arrived at at through through negotiation negotiation between between managers managers of of buying buying and and selling selling divisions. divisions. Much Much management management time time is is used used in in the the negotiation negotiation process. process. ACTG 2020 Week 11 Negotiated Negotiated price price may may not not be be in in the the best best interest interest of of overall overall company company operations. operations. 11 General Transfer Pricing Rule Transfer price ACTG 2020 = Additional outlay cost per unit incurred because goods are transferred Week 11 + Opportunity cost per unit to the organization because of the transfer 12 LO10 General Transfer Pricing Rule • Using the general rule, the selling division is reimbursed for the variable costs of the product or service plus any margin forgone by not selling in the external marketplace. – In situations where the external market is willing to buy all the goods and services made (no excess capacity), the opportunity cost of selling instead to an internal division is the contribution margin lost on the outside sales. – If there is no external buyer (excess capacity exists), the product or service would transfer at an amount
(TCO 10) How is a transfer price determined? Describe the cost-based method. Do you think it is better than the market-based method?
Pricing is a pertinent issue in procurement and acquisition in organizations. Consumers buying the commodities of an entity should get clarity on pricing related issues. There is uncertainty in Pro
* Read the article titled, “What Manufacturers Need to Know about Transfer Pricing,” located in Week 5 of the online course shell. You may also view the article at
Discuss the US transfer pricing regulations, including advances pricing agreements, arms length standard, and methods allowed to determine comparable prices. - 60
First point for setting up transfer pricing range is the point of benefit for both the division. Here, the organization transferring products should ensure that it does follow the law regarding not selling produce below standard rates in the market (Brigham & Ehrhardt, 2007). Transfer price must be set at a rate than it is not resulting in higher expenditure for the organization over a period of time. For transfer pricing, it is an advantage as this method helps organization to work at a lower cost.
The company should consider whether the transfer pricing method has simplicity and transparency, which provide objective performance measurements for division managers. With regard to simplicity and transparency, it is best for the company to set market-based transfer pricing because this is more objective than cost-based transfer pricing. In particular, when companies use cost-based transfer pricing, it is difficult to evaluate division performance unless the transfer prices exceed full costs.
Module 8: Assignments Collaborative Learning Community: Pricing Decisions 1) Within your CLC, choose a publicly traded company and identify one of its products that the group will analyze. Describe the strategic implications that would need to be considered in setting a price for that product, and determine whether the group would use a market-based pricing approach or a cost-based pricing approach to setting the product price. Explain the rationale behind choosing the pricing approach. Identify the costs that the group thinks would be considered in setting the product price, and come up with a sample cost structure for the product (make it as realistic as possible). Calculate a price for the product, and defend your product price and related cost structure.
There are five methods of transfer pricing that consists of traditional methods recommended by OECD of the Comparable Uncontrolled Price (CUP), Resale Price, and Cost Plus methods. The profit based methods, no recommended because they are considered insufficient in comparisons, are the Profit-splits and the Profit comparison (TNNM) methods. CUP compares the price charged in a controlled transaction to the price charged in an uncontrolled transaction in comparable circumstances. This method is reliable when the same product is sold between two associated enterprises. The Resale price is used to determine the price paid by the reseller for product from and associated enterprise and resold to an independent enterprise. It includes all costs of selling, operating, customs duties, and arm's length price. This method is usually applied to marketing operations. The Cost plus method is used to
In summary, the main advantage of market-based transfer prices is that they are objective and unbiased measures, although they might fluctuate because of market conditions over time. Further, they are difficult to manipulate.
The measurement of profit is also compounded by the use of transfer prices and agreeing on its ‘fairness’. Transfer prices are allocated to goods transferred from one unit to another within a firm. The implication of transfer prices is that for the selling unit it will be a source of revenue and for the receiving unit it is an element of cost, and as a result each division may act in its own interests. Transfer pricing therefore has a significant bearing when
This is, the transfer price will be an income to Hudson Bay, which is the selling division, and it will be a cost for Volkmar construction Instruments, the buying division. It will only affect each division’s profit and the evaluation of its performance. As for General Instrumentation Company, there is no effect because both divisions are under the same umbrella of the company. This is, transfer pricing will show that it is a revenue in one division, and it matches as expenses in another division. As a result, transfer pricing does not show an overall effect on a company’s income. However, the most important thing that we can measure the company’s success is that we should take into account about the all level of management decision making, effective performance measurement, and appropriate investment decisions when we are practicing the transfer pricing
Transfer pricing is a popular topic in management accounting. It is concerned with the price when one department (the selling department) provides goods or services to another department (the buying department). That is, one department generates revenue from the sales of goods or services and the other department incurs expenses from the purchases of goods or services. Transfer pricing is closely related to responsibility accounting in which each department is responsible for its cost, revenue, expense or investment return depending on the type of centre it is. Thus, transfer pricing effectiveness is essential to the success of the overall company. The related key issue is the determination of a transfer
to define the transfer pricing policy. Although the transfer pricing of Heidelberg is high, it would be interesting to force the two divisions to discuss and find a compromise on price. A potential way of determining both Heidelberg and later ECD’s transfer prices, would be to use the incremental cost per unit. Each division has excess capacity to spare and would not be forgoing potential sales by selling internally at a lower price. Although the company risks alienating external suppliers, as it stands now the product only represents 5% of total revenue for each division involved. Thus it is not likely to anger potential suppliers initially. The market is competitive enough that if in the future the company needs to outsource, there will still be willing suppliers.
Pricing and Contracts- cover areas such as sales agreements, negotiation of contracts, processing of release order
Some assets not only store wealth but also create income. For example, an investment in a share of stock stores wealth and also perhaps creates dividend income. A deposit in a savings account stores wealth and creates interest income. Some investors care more about increasing asset value than about income. For example, an investment in a share of corporate stock may produce a dividend, which is a share of the corporation’s profit, or the company may keep all its profit rather than pay dividends to shareholders. Reinvesting that profit in the company may help the company to increase in value. If the company increases in value, the stock increases in value, increasing investors’ wealth.