CHAPTER 23: TRANSFER PRICING Chapter Contents: - Definition and Overview - Transfer Pricing Options - Market-based Transfer Prices - Cost-based Transfer Prices - Negotiated Transfer Prices - Survey of Practice - External Reporting - Dual Transfer Pricing - Transfer Pricing and Multinational Income Taxes - Other Regulatory Issues Definition and Overview: A transfer price is what one part of a company charges another part of the same
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flows include the effects of inflation, but real cash flows do not.) b. Is the 10 percent cost of capital a nominal or a real rate? c. Is the current NPV biased, and, if so, in what direction? Question 8 Now assume that the sales price will increase by the 5 percent inflation rate beginning after Year 0. However, assume that cash operating costs will increase by only 2 percent annually from the initial cost estimate, because over half
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account for 80% of total sales. The requested capital investment for Super was $200,000, and its production would take place after modifying an existing building, where Jell-O was manufactured and by using available capacity of Jell-O agglomerator. Cost for the key machine was not included in the project. On the basis of test market experience, once the product is introduced, it was expected to capture a 10% of dessert market share, 80% of which would come from growth in total dessert market share
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concerned with making choices. We will assume that the relevant choice is whether to change a current activity level by a little bit. That is, do we hire one more worker? Produce one more unit of output? Purchase one more slice of pizza? This is what is known as a marginal change. To make a good decision, we compare the marginal benefit, the additional benefit resulting from a small increase in some activity, with the marginal cost, the additional cost resulting from a small increase in some activity
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3. Trade off between fair value accounting and historical cost accounting a) Relevance: Financial information is relevant when it influences the economic decisions of users, Fair value reporting is more relevant as it will allow users of financial statements to obtain a truer and fairer view of the company's real financial situation since it reflects the prevailing economic conditions and the changes in them. In contrast, historical cost accounting shows the conditions that existed when the transaction
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in which all expenses must be justified for each new period. It requires managers to justify all budgeted expenditures, not just changes in the budget from the prior year. 4. Muster Budget: A set of interconnected budgets of sales, production costs, purchases, incomes etc. is called Master Budget. It also includes pro-forma financial statements. It serves as a planning and control tool of the organization. 5. Cash Budget: Estimation of cash inflows and out flows for a business or individual
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offers three types of printers: high-end, standard and low-end. All three types of printers offered by the firm are similar in size and shape. The only differences are in the software and the chip used in the printers. The three models of the printers cost Rs.20,000 , 15,000 and 10,000 per unit, respectively. If the firm decides to use air as the mode of transport, it can fly the goods in smaller lots of 100 units, while shipping via sea requires a minimum shipment size of 400 units. The demand in Europe
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Adam Gowin 10/29 Questions for discussion and Review 3.2) Q: Discuss the cost leadership, differentiation, and focus strategies. A: Cost leadership: describes a way to establish the competitive advantage. Differentiation: undertake to set its products, services and brands apart from those of its competitors. Focus: concentrates its resources on entering or expanding in a narrow market or industry segment. 3.4) Q: What are the 3 key components of a balance sheet? A: assets, liabilities
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research on the aggregate contract and individual contract evaluation. The model they used is based on risk-neutral principal and agent. There is no income for agent, but he/she can derive income from the slack contract, which is the reported cost minus the real cost. Contract setting is based on Hurdle contract. Principal will set the hurdle at c+σ for slack contract, no matter what agent reports, if the price is below c+σ, principal will pay c+σ; while principal also set c-σ for the rationing contract
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lower cost and more durable at the same time. This is extremely detrimental to the steel ring market and will force precision worldwide out of business if actions are not taken. Related Business Issues 1. Excessive inventory levels of steel rings Hans thorborg carries large quantity of steels rings and special steels inventory, which values about $390,000. The special steels couldn’t even sale as scrap as it described in article. The article also indicates that hans thorborg will cost $110,900
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