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
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Q: Many organizations use transfer pricing when transferring products between different divisions of…
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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
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Solved in 3 steps
- 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 approachDiscuss the advantages and disadvantages of a market-based transfer pricing approach.Discuss the advantages and disadvantages of a cost-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.Management of Green Peak Tea Company has asked you, the controller, to develop a transfer pricing system for the company. The Brewing Department of the company sells all of its product to the Bottling Department of the company. Thus the Brewing 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.Discuss the advantages and disadvantages of a negotiated transfer pricing approach.
- 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 disadvantagesMany 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 disadvantagesThe company uses the opportunity cost approach to transfer pricing. What is the minimum transfer price in Case 1?
- 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.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.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