Chapter 13

Spreading the Wealth with Transfer Prices

In This Chapter

arrow Understanding why transfer prices are necessary

arrow Letting divisions haggle over their own transfer prices

arrow Using cost-based transfer prices

arrow Taking the guesswork out of transfer pricing by using market value

arrow Considering the centralization option

My three sons love to cut deals. Yesterday, Levi sold David three action figures for $1, payable whenever David collects the $5 that Aaron owes him for his old watch. Aaron, meanwhile, is still waiting for the $5.37 balance from Levi for an old, torn-up Harry Potter book. These deals often require complex computations involving not only time value of money (a dollar today is worth more than a dollar tomorrow) but also cost, market value, and opportunity costs. Negotiations can stretch on for days or even weeks and sometimes employ tactics that probably wouldn’t hold up in court. My boys attach great importance to these prices because they can substantially increase their net ...

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