Spreading the Wealth with Transfer Prices
In This Chapter
Understanding why transfer prices are necessary
Letting divisions haggle over their own transfer prices
Using cost-based transfer prices
Taking the guesswork out of transfer pricing by using market value
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 ...