6. Market-Based Transfer Prices Transferring at Market Price is best if 1 Perfectly Competitive Market 2 Interdependence of Subunit is Minimal 3 No additional Cost-benefits to company
11. Variable-Cost Pricing In situations where idle capacity exists, variable cost would generally be the better basis for transfer pricing and would lead to the optimum decision for the firm as a whole.
12.
13. Dysfunctional Behavior Virtually any type of transfer pricing policy can lead to dysfunctional behavior – actions taken in conflict with organizational goals .
17. Multinational Transfer Pricing Example Income of A is Rs40 higher: 25% × 40 = (Rs10) higher taxes Income of B is Rs40 lower: 50% × 40 = Rs20 lower taxes Import duty paid by B: 20% × 40 = (Rs8) Net savings = Rs2