Transfer Pricing

|Question: |
|Literature in the area of transfer make up covers a number of different approaches such(prenominal) as employ marginal follow as transfer price or using activity based costing |
|techniques to split price into twain or more elements. Evaluate the |
|effectiveness of these two different approaches.



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Transfer prices set by marginal cost pricing, when there is no market for the goods and services that are bought and change between the divisions of an organization, the transfer price should be the marginal cost, which is ordinarily assumed to be short-term variable cost. A division records all of the parts used to make, for example, a computer case, such as the sheets of metal and plastic used to build it. shifting overhead is added, including energy bills, wages of excess workers and rent of additional factory space. Setting transfer prices equal to marginal be helps managers to identify the output levels that will maximize profits.

There mountain be problems if managers do not have accurate cost information. This creates an incentive for division managers to mislead central managers. Without considering fixed costs, the get division gets a discount compared with buying parts on the open market, and the manufacturing division appears inefficient, which affects each managers review.

If using the Activitiy Based cost for transfer pricing, the price are set for coming class based on budgeted data, The company calculates standard...If you want to get a full essay, order it on our website: Ordercustompaper.com



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