ACC640 Week 6 Discussion Forum 2 Transfer Price

            Diversified groups are divided into smaller units, each reporting its performance separately. Each of these divisions reports results for its particular area of operations and is a profit center. Additionally, each of these profit centers pays taxes on their earnings. Large multinational corporations frequently hold separate businesses created in many nations, and each of these subsidiaries serves as a profit center. Establishing fair prices for the items and services sold inside the organization is necessary since these profit centers trade with one another. We refer to this procedure as transfer pricing. You will recognize that such price selections are influenced by tax, motivational, and legal factors.

Costs can be categorized in one way based on how much control an organization has over them. Expenses that a business or management may influence are known as controllable costs. The salary that the business pays its employees, the cost of the training those employees get, and the cost of maintaining its facilities and equipment are a few examples of controllable expenses (Buckley & Casson, 2019). Although managers may decide to cut some controllable expenditures, such as those in the cases mentioned earlier, they must consider the long-term effects, for example, in an instance where the management decides to cut back on the expense of equipment and facility maintenance.

Although the management would save costs soon, it is crucial to consider the actions' long-term effects. Uncontrollable expenses are those that an organization or management has little to no control over. As a result, they shouldn’t be included in the analysis of the manager’s or the segment’s performance. On the other hand, goal congruence, or the alignment of a segment’s, responsibility centers, or even a single manager’s goals with the organizational strategy, can be impacted by transfer pricing. Recall the information you learned about the various company segments. Segments are frequently organized according to the kind of service or product delivered.

Reference

Buckley, P., & Casson, M. (2019). Decision-making in international business. Journal of International Business Studies, 50(8), 1424–1439.