The following questions pertain to the process of transfer pricing.
1.Define the term "transfer price."
2.What the three general alternatives for setting domestic transfer prices?
3.What is meant by the term "dual pricing," as used within the context of the transfer pricing decision? Give one example of "dual pricing."
4.What criteria can be used to judge a particular transfer pricing alternative? (Hint: think about the different objectives of transfer pricing,including objectives in an international setting. )
5.What is meant by the term "advance pricing agreement"

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Feedback: 1.A transfer price is the amount assigned (or charged)for intraorganizational transfers of goods or services.That is,it is the price one subunit of an organization charges for a product or service supplied to another subunit of the same organization.Note that the subunits can be cost centers,profit centers,or investment centers.
2.The three general alternatives for setting domestic transfer prices are as follows: cost (either variable cost or full cost,either standard cost or actual cost),market price,and negotiated price.
3.There is no strict requirement that the same transfer price be used by both the buying unit and the selling subunit for a given transaction.When two separate transfer prices are used for an internal transfer (one for the buying unit,the other for the selling unit),dual pricing is used.For example,on a given internal transaction,the buying unit might be charged standard full cost,while the selling unit might use the external market price to record the transaction.(Note that when consolidated financial statements are prepared,the income effect of all internal transfers is removed as part of the consolidation process. )
4.The chapter identifies the following primary objectives for transfer pricing: (a)managerial motivation,(b)goal congruency (i.e. ,consistency between goals of top management and decisions made by managers),and (c)performance evaluation (i.e. ,the transfer price mechanism should be useful for rewarding managers for their effort and skill,and the effectiveness of the decisions they make).Students should also specifically mention tax planning from an international perspective.Students may indicate the following additional objectives: (a)autonomy (i.e. ,extent to which a particular transfer price preserves a high level of subunit autonomy in decision-making),and (b)administrative ease/implementation costs.
5.Advance pricing agreements (

The Following Questions Pertain to the Process of Transfer Pricing