Many organisations use transfer pricing when transferring products between different divisions of the same organisation. You are required to critically discuss the advantages and disadvantages of two of the following methods: 1) Market based transfer prices; (Note: define, explain gives examples, advantages and disadvantages) 2) Full cost transfer prices; 3) Cost-plus a mark-up transfer prices; and 4) Negotiated transfer prices.

Many organisations use transfer pricing when transferring products between different divisions of the same organisation. You are required to critically discuss the advantages and disadvantages of two of the following methods: 1) Market based transfer prices; (Note: define, explain gives examples, advantages and disadvantages) 2) Full cost transfer prices; 3) Cost-plus a mark-up transfer prices; and 4) Negotiated transfer prices.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter9: Responsibility Accounting And Decentralization

Section: Chapter Questions

Problem 18MC: A transfer pricing arrangement that uses the price that would be charged to an external customer is...

See similar textbooks

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
Discuss the advantages and disadvantages of a negotiated transfer pricing approach.
Discuss the advantages and disadvantages of a cost-based transfer pricing approach.
Discuss the advantages and disadvantages of a market-based transfer pricing approach.
The company uses the opportunity cost approach to transfer pricing. What is the minimum transfer price in Case 1?
The three common approaches to setting transfer prices include: the _____ price approach, where the transfer price is the price at which the product or service transferred could be sold to outside buyers; the _____ price approach allows the managers to agree among themselves on a transfer price; and the _____ price approach, where cost is used to set transfer prices. cost; market; negotiated market; cost; negotiated market; negotiated; cost negotiated; market; cost none of the above
Many organizations use transfer pricing when transferring products between different divisions of the same organisation. Critically discuss the advantages and disadvantages of the method: Negociated transfer price. Note: Define, explain gives examples and advantages and disadvantages
Explain one advantage and one disadvantage of the following transfer pricing methods: Cost Market based Negotiated
Many organizations use transfer pricing when transferring products between different divisions of the same organisation. Critically discuss the advantages and disadvantages of the method: Market based transfer price. Note: Define, explain gives examples and advantages and disadvantages
Many organizations use transfer pricing when transferring products between different divisions of the same organisation. Critically discuss the advantages and disadvantages of the method: Cost plus a mark-up transfer prices Note: Define, explain gives examples and advantages and disadvantages
Which of the following is an advantage of using cost-based transfer prices? Multiple Choice Such prices are an objective measure and easy to compute. Such prices motivate the buying division to control cost. Such prices provide a sense of fairness. Such prices will usually exceed the market-based or negotiated transfer prices.
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