Cost Based Transfer Pricing

Pfeiffer, Thomas; Schiller, Ulf; Wagner, Joachim

doi:10.2139/ssrn.1024112

Cited by 23 publications

(26 citation statements)

References 36 publications

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“…A central issue for the company is how different user groups should be charged for IT-related capacity costs. 3 See, for instance, Balakrishnan and Sivaramakrishnan (2002), Goex (2002), Sahay (2003), Wei (2004), Pfeiffer et al (2009), and Bouwens and Steens (2008).…”

Section: Introductionmentioning

confidence: 99%

“…To that end, it will be useful to make the following assumption regarding the divisional revenue functions: 21 Earlier papers on transfer pricing that have examined this hold-up effect include Edlin and Reichelstein (1995), Baldenius et al (1999), Anctil and Dutta (1999), Wielenberg (2000), and Pfeiffer et al (2009). 22 A similar convex combination of investment returns arises in the analysis of Edlin and Reichelstein (1995), where the parties sign a fixed quantity contract to trade some good at a later date.…”

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confidence: 99%

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Decentralized capacity management and internal pricing

Dutta

Reichelstein

2010

Rev Account Stud

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This paper studies the acquisition and subsequent utilization of production capacity in a multidivisional firm. In a setting where an upstream division provides capacity services for itself and a downstream division, our analysis explores whether the divisions should be structured as investment or profit centers. The choice of responsibility centers is naturally linked to the internal pricing rules for capacity services. As a benchmark, we establish the efficiency of an arrangement in which the upstream division is organized as an investment center, and capacity services to the downstream division are priced at full historical cost. Such responsibility center arrangements may, however, be vulnerable to dynamic hold-up problems whenever the divisional capacity assignments are fungible in the shortrun, and therefore, it is essential to let divisional managers negotiate over their actual capacity assignments. The dynamic hold-up problem can be alleviated with more symmetric choice of responsibility centers. The firm can centralize ownership of capacity assets with the provision that both divisions rent capacity on a periodic basis from a central unit. An alternative and more decentralized solution is obtained by a system of bilateral capacity ownership in which both divisions become investment centers.

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Section: Introductionmentioning

confidence: 99%

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confidence: 99%

Decentralized capacity management and internal pricing

Dutta

Reichelstein

2010

Rev Account Stud

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“…This difficulty may have been in part a consequence of the assumption in those studies that upfront investments cannot be verified by the firm's accounting system; see, for instance, Baldenius, Reichelstein, andSahay (1999), Johnson (2006) and Pfeiffer, Schiller, and Wagner (2011). 28 One promising avenue for future research is to revisit the desirability of full-cost transfer prices in the context of capacity investments.…”

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confidence: 99%

Levelized Product Cost: Concept and Decision Relevance

Reichelstein

Rohlfing-Bastian

2014

The Accounting Review

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This paper examines a life-cycle cost concept that applies to both manufacturing and service industries in which upfront capacity investments are essential. Borrowing from the energy literature, we refer to this cost measure as the levelized product cost (LC). Per unit of output, the levelized cost aggregates a share of the initial capacity expenditure with periodic fixed and variable operating costs. The resulting cost figure exceeds the full cost of a product, as commonly calculated in managerial accounting. Our analysis shows that the LC can be interpreted as the long-run marginal product cost. In particular, this cost measure is shown to be the relevant unit cost that firms should impute for investments in productive capacity. JEL-Code: M200, M410, L110, L120. Terms of use: Documents in EconStor may

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“…Many firms adopt this strategy in their intra-company trade and treat the inter-company trade as cost-based transfer pricing. Pfeiffer et al (2011) indicates a range of different methods for cost-based transfer pricing, which are based on either standard or actual costs including mark-ups. While the rules and procedures of these methods have been extensively described, yet the efficiency and the precision of these methods are not well-informed.…”

Section: Literature Review Pricing Strategymentioning

confidence: 99%

“…Regarding capability to set price, this interview indicates high dependency of the observed firms to main supplier. Pfeiffer et al (2011) consider transfer cost from supplier with cost-based pricing method, which refers to the total cost is added (as income or profit) to the cost of the product to arrive at its selling price.…”

Section: "Instead Of Increasing the Price We Prefer To Provide Discomentioning

confidence: 99%