Many organisations use transfer pricing when transferring products between different divisions of the same organisation.Include critical evaluation of the models and concepts proposed outlining their merits and limitations.

Strategic management accounting

Question (1650 words)

Many organisations use transfer pricing when transferring products between different divisions of the same organisation.

You are required to critically discuss the advantages and disadvantages of two of the following methods:

1) Market based transfer prices;
2) Full cost transfer prices;
3) Marginal/variable cost transfer prices;
4) Cost-plus a mark-up transfer prices; and
5) Negotiated transfer prices.

Choose any two of the above five transfer pricing methods:

(a) The first chosen method
(b) The second chosen method

The report should include critical evaluation of the models and concepts proposed outlining their merits and limitations. You may incorporate logical assumptions with regard to the company and use numerical examples to illustrate the models and concepts that you propose to adopt.

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