Transfer Pricing at Southern

The transfer price of Southern Alternative is based on the cost of transfer pricing to maintain the current situation within the company. Since it is necessary to use standard costs for all costing methods, we recommend that each department meet standard cost levels rather than actual costs. This improves the consistency of the target. At the moment, the price that China Southern Airlines requests is based on the market, but the operation capacity is insufficient and there are too many stocks. Therefore, Thompson charges the market price even if my ability is insufficient.

Likewise, the transfer price of the market exchange rate does not reflect whether the segment is in production capacity or over inventory, and it has a big influence on the transfer price. Since South Division's operational capacity is lower than its capacity and there is excess inventory, the transfer price is determined by the variable cost and at least its overstock can be sold at least. If the contract price of the contract with the external supplier is close, the Thompson branch may not be running at full capacity, so it may be setting the transfer price at the incremental cost to fulfill the order. Each department can not increase the final result of the report, but BPC can judge at least whether internal bidding is competing with external bidding, thereby eliminating the possibility of external bidding due to pricing mistakes .

In the analysis, we first check the transfer price of the market exchange rate and decide the bid in the northern region. In the analysis, confirm the transfer price ("free" or variable cost) and decide the bid of Northern Division. Finally, this analysis emphasizes which transfer pricing strategy provides the greatest benefit to BPC and why. When analyzing the cost structure in the South District, we decide these variable costs as $ 168 per 1000 cases. It marks its products at its market price of 280/1000 cases transferred to Thompson branch either outside or inside. (Chart 1) Since the capacity of the sector is also below the capacity and inventory is exceeded, the current market interest rate is not necessarily the internal price.