Objectives of Transfer Prices -For lettuce centers to share in the revenue find when convergence is sold -Transfer expense is the mechanism for distributing this revenue -Goals oShould provide building block with pertinent information to determine trade off of cost and revenues oInduce death congruent decisions (improve comp whatsoever and unit profits) oMeasure economic feat of the unit oSimple to understand, effortless to administer Transfer price methods -Traditional: step used in accounting for any channelize of goods and execute between responsibility centers -Book: Value position on a point of good or services in transactions in which at least iodin of the two parties heterogeneous is a profit center Fundamental Principle -The transfer price should be similar to the price that would be charged if the harvest-home were sold to outside customers or purchased from outside sellers oIssues with pricing - should it be so that MC = MP etc? Profit centers arou se two decisions when purchasing -Sourcing conclusiveness - should the company issue the harvest-tide inside the company or purchase it from an outside vendor? -Transfer Price Decision - If produce inside, at what price should the product be transferred between profit centers?
The Ideal Situation A mart price based transfer price impart induce goal congruence if every the sideline conditions hold up: -Competent people - mangers interested in LT and ST -Good atmosphere - managers discern that the transfer price is just -Market price - price based on well-established, normal commercialise price for identical product (adjust market price downward for sa! vings incurred) -Freedom to source - managers choose their go around place to purchase it/sell it -Full information - managers chouse of all information of other choices -Negotiation - smooth mechanism for negotiating Constraints... If you ask to take out a full essay, order it on our website:
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