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Hi
Please help me understand transfer pricing….having difficulty answering questions on this…..what are the key elements I need to look for in a question.
The most important thing is for you to understand the criteria for designing a Transfer price.
1. Divisional Autonomy
2. Goal Congruence
3. Performance measurement (Profitability)
The types of Transfer prices and the rule for transfer pricing.
The rule is A good transfer price..” Marginal Cost plus Opportunity cost”.
Types of TP
1. Marginal Cost
2. Market price
3. External price from Alternative supplier
4. Internal Transfers
5. Dual Transfer price ( MC and Market Price… For reporting purposes (ACCOUNTING)- Cancelled on consolidation)
6. Cost plus.
When discussing these different Transfer Prices you must always tailor them to the Criteria for designing a TP.
Look also at the Taxation side of TP.
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