Robert Luther
A multiple price approach to limiting intra-group transfer pricing negotiations
Luther, Robert; Zverovich, Svetlana
Abstract
Various approaches to solving the well-known transfer pricing problem are known. However, none satisfactorily resolve the objective of allowing both divisions to earn a profit in such a way that sub-optimal output levels are avoided. Tomkins (1990) combines a single cost-plus transfer price with a pragmatic process of negotiation. That model is excellent when the source division’s target contribution is ‘small’. However, its practical value is limited if the target contribution is ‘close’ to 50%, because a disproportionate level of negotiation is required. In certain circumstances a high level of negotiation may be costly, contrary to the organisational culture, or strategic imperatives. In this paper, Tomkins’ model is developed by introducing multiple transfer prices. By using just a few transfer prices, it is possible to guarantee that the proportion of group contribution over which negotiation is required does not exceed 1%, thereby reducing the risk of managers taking advantage of unequal power.
Citation
Luther, R., & Zverovich, S. (2010). A multiple price approach to limiting intra-group transfer pricing negotiations. International Journal of Management Accounting Research, 3(2),
Journal Article Type | Article |
---|---|
Publication Date | Sep 30, 2010 |
Journal | International Journal of Management Accounting |
Print ISSN | 2163-3843 |
Publisher | Nova Science Publishers |
Peer Reviewed | Peer Reviewed |
Volume | 3 |
Issue | 2 |
Keywords | transfer pricing, negotiation, Tomkins’ model, Samuels’ model |
Publisher URL | https://www.novapublishers.com/catalog/product_info.php?products_id=48675 |
Files
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