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Management control systems
Transfer pricing
6.1 Objectives of transfer pricing
 Goal congruence
 Divisional autonomy
 Performance
measurement
 Fair allocation of profits
between divisions
 Minimising global tax
 Recording movement of
goods and services
6.2 Typical methods of setting transfer prices
 Market price
 Cost plus
 Negotiation
 Dual pricing
TP can influence decisions
Head office would rather not interfere in every
decision
TP affects divisional performance
TP splits profits between seller (TP = income) and
buyer (TP = cost)
TP moves profit from one tax jurisdiction to another
Basic accounting – otherwise transactions not
recognised
If one exists!
Usually results in goal congruence
May be adjusted for selling/buying costs
Which cost?
Actual cost may result in inefficiencies
One division may have more power
Different TPs for seller/buyer
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