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TRANSFER PRICING
pt. 1 - Coggle Diagram
TRANSFER PRICING
pt. 1
ISSUES ARISE
TP is a cost for Receiving Div (RD)
- Lower the cost = Higher the profit
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TP is an income source for Transferring Div (TD)
- higher price = higher profit
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MIN TP
- no mrkt
if TD = cost centre, min acceptable price = VC p/u
- intermediate mrkt, no constraints
min acceptable price = VCs
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- capacity constraints exist
TP = VC p/u + Lost contribution of units sacrificed
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MAX TP
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- required is sold in mrkt
max price in indiff formula is ltd to price in mrkt
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TP OPTIONS
Ch. 20
Market Price
- Goal Congruence met
- Performance met
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perfectly competitive market
- products are identical, nobody influences price
sell to outside mrkt or transfer internally, profits for each div & for company remain unchanged
assuming cost base will be full cost, fixed cost TD will be "unitized", then mark up is added
RD will compare its "net marginal revenue" (NMR) to the TP, and increase output as long as NMR > TP p/batch
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imperfect or no mrkt, VC of TD can motivate both managers to operate @ lvls to max Co. profits
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