BU491 Study Guide - Midterm Guide: Oligopoly, Arbitrage, North American Free Trade Agreement
Document Summary
Technical test set #2: please define the transfer pricing concept. Please identify and describe two strategic objectives related to establishing a transfer price for a firm engaged in the formulation or execution of an international strategy. Please describe two (2) potential negative implications for a firm engaged in transfer pricing. Directly affects the revenues of the supplying profit center and the costs of the buying profit center. Objective 1: should provide useful information to evaluate performance of both profit centers. The prices should not cause profit to be over/understated as misleading profitability can adversely affect allocation of resources and de-motivate managers. Gives proper economic signals that affects the quality of decision making. Objective 2: transfer pricing can be set to purposely move profit between firm locations: for tax reasons (move profit to lower tax area, profit repatriation limits (move profits with high limits of repatriation)
