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When is negotiated transfer pricing problematic? Strategies?

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Do you think negotiated transfer pricing might be problematic if there are differences in powers between divisions and heads of divisions in organizations as far as negotiated transfer pricing is concerned? And if so, what strategies could be applied to overcome these problems?

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Solution Summary

Your tutorial is 282 words and an example of two transfer prices based on whether the sender or receiver has power to illustrate how this works. Three ideas for mitigating the impact are suggested.

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Do you think negotiated transfer pricing might be problematic if there are differences in powers between divisions and heads of divisions in organizations as far as negotiated transfer pricing is concerned?

Yes, there is a problem. Transfer pricing sets the profit for the sending unit and sets the cost for the receiving unit. So, if the sending unit has a lot of power, the transfer prices will be high to maximize their ...

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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