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Importance of Transfer Pricing and Performance Measures.

Comment on the importance of transfer pricing and performance measures.

How do they relate? And why are they important in the business environment?

Some helpful websites:
http://www.pwc.com/gx/en/tax/transfer-pricing
http://www.valuebasedmanagement.net/methods_eva.html

Solution Preview

This is a hot topic for individual profit centers and investment centers within a firm but often has no impact on the consolidated performance of the total firm. This is because transfer prices are the prices that units within a firm set to sell to each other. So, the sales price in one division is the same as the cost to another division. Any profit made in Step 1 because higher cost in Step 2 and so the ...

Solution Summary

Your tutorial is 256 words and explains why transfer prices make performance evaluation difficult. An example is given.

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