Title

A breakthrough in transfer pricing : the renegotiate-any-time system

Document Type

Journal article

Source Publication

Management Accounting Quarterly

Publication Date

Winter 2002

Volume

2002

Issue

Winter

First Page

1

Last Page

8

Publisher

Institute of Management Accountants

Abstract

Despite the long history of transfer pricing in many organizations, the attainment of an optimal transfer price often remains elusive. Toward this end, I have modified a concept from finance and developed it into a system applicable to the field of management accounting to make it easier for two divisions to agree on an optimal transfer price. I call it the Renegotiate-Any-Time (RAT) system. Under the RAT system, the buying division is allowed to purchase an option from the selling division, which gives the buying division the right to buy the intermediate goods at a reduced unit price. Both the option price and the reduced unit transfer price are negotiable between the two divisions. The option system provides an incentive mechanism that motivates both divisions to set a transfer price that maximizes profit for the firm as a whole.

Print ISSN

15285359

Publisher Statement

Copyright © 2002 Institute of Management Accountants

Full-text Version

Publisher’s Version

Recommended Citation

Cheng, J. (2002). A breakthrough in transfer pricing: The renegotiate-any-time system. Management Accounting Quarterly, 2002(Winter), 1-8. Retrieved from https://www.imanet.org/-/media/bda43abff0584fbb97cff5c74ff340e3.ashx