Answered: 1. “Transfer pricing is confined to…

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Accounting

1. “Transfer pricing is confined to profit centres”. Do you agree? Why?

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 19MC: A transfer pricing structure that considers the opportunity costs of selling to internal rather than...

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Question

1. “Transfer pricing is confined to profit centres”. Do you agree? Why?

2. Give three general methods for determining transfer prices.

3. What properties should transfer-pricing systems have?

4. “All transfer-pricing methods give the same division operating income.” Do you agree? Explain.

5. Under what conditions is a market-based transfer price optimal?

6. What is one potential limitation of full cost-based transfer pricing?

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Similar questions

A transfer pricing structure that considers the opportunity costs of selling to internal rather than external customers uses_______. A. the cost approach B. the general transfer pricing approach C. the market-based approach D. the opportunity cost approach
A transfer pricing arrangement that uses the price that would be charged to an external customer is a______. A. market-based approach B. negotiated approach C. cost approach D. decentralized approach
If an outside, perfectly competitive market exists for the intermediate product, what should the transfer price be? Why?
Discuss the advantages and disadvantages of a market-based transfer pricing approach.
Management of Great Springs Bottled Water Company has asked you, the controller, to develop a transfer pricing system for the company. The Transportation Department of the company sells all of its product to the Bottling Department of the company. Thus the Transportation Departments sales become the Bottling Departments cost of goods sold. In order to determine an optimal transfer pricing system, management would like you to demonstrate what an income statement would look like under a cost, market, and negotiated transfer pricing structure. These various transfer prices are listed as follows. Prepare an income statement for each of the transfer prices by filling in the missing numbers in the provided income statement based on each transfer price (thus four different income statements) and calculate the operating income/loss percentage. Prepare a brief summary of the results.
“Transfer pricing is confined to profit centers.” Do you agree? Explain.
Select Among the choices, this transfer prices basis is considered as the most inferior one: a. variable cost transfer pice b. full cost transfer price c. negotiatied transfer price d. external market transfer price e. dual transfer price
Explain one advantage and one disadvantage of the following transfer pricing methods: Cost Market based Negotiated
ANSWER TRUE OR FALSE Transfer prices can be used to promote goal congruence among operating segments of an organization. In computing a transfer price, the maximum price should be no higher than the lowest market price at which the buying segment can obtain the good or service externally. In computing a transfer price, the maximum price should be no higher than the highest market price at which the buying segment can obtain the good or service externally. In computing a transfer price, the minimum price should be no lower than the incremental costs associated with the goods plus the opportunity cost of the facilities used. One of the main factors to consider when using a cost-based transfer price is whether to use actual or standard costs. When using a negotiated transfer price, a decision must be made which market price to use. When using a market-based transfer price, a decision must be made which market price to use. When using a market-based transfer…
This transfer prices basis is considered to be the most inferior one a. variable cost transfer pice b. full cost transfer price c. negotiatied transfer price d. external market transfer price e. dual transfer price
2. Transfer prices can be based on any of the following methods except a)variable cost b)replacement cost c)negotiated price between selling and buying divisions d)external market price e)variable and fixed costs
Should transfers be made to division B if there is no unused capacity in division A? Is the market price the correct transfer price? Show your computations.