Cost-based transfer pricing

Pfeiffer, Thomas; Schiller, Ulf; Wagner, Joachim (2011). Cost-based transfer pricing. Review of accounting studies, 16(2), pp. 219-246. Norwell, Mass.: Springer 10.1007/s11142-011-9140-0

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This paper compares the performance of alternative cost-based transfer pricing methods. We adopt an incomplete contracting framework with asymmetric information at the trading stage. Transfer pricing guides intra-company trade and provides incentives for value-enhancing specific investments. We compare actual-cost transfer prices that include a markup over marginal costs with standard-cost transfer prices that are determined either by the central office ex ante (centralized standard-cost transfer pricing) or by the supplying division at the trading stage (reported standard-cost transfer pricing). For the actual-cost methods, we show that markups based on the joint contribution margin (contribution-margin transfer pricing) dominate purely additive markups (cost-plus transfer pricing). We obtain the following results. (1) Centralized standard-cost transfer pricing dominates the other methods if the central office and the divisions ex ante face low cost uncertainty. (2) The actual-cost methods dominate the other methods if the central office and the divisions ex ante face high cost uncertainty and later, at the trading stage, the buying division receives sufficient cost information. (3) Reported standard-cost transfer pricing dominates the other methods if the central office and the divisions ex ante face high cost uncertainty, and the buyer has insufficient cost information at the trading stage.

Item Type:

Journal Article (Original Article)

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Business Management > Institute for Accounting and Controlling > Managerial Accounting

UniBE Contributor:

Schiller, Ulf

ISSN:

1380-6653

Publisher:

Springer

Language:

English

Submitter:

Factscience Import

Date Deposited:

04 Oct 2013 14:27

Last Modified:

05 Dec 2022 14:08

Publisher DOI:

10.1007/s11142-011-9140-0

Web of Science ID:

000290542400001

BORIS DOI:

10.48350/9680

URI:

https://boris.unibe.ch/id/eprint/9680 (FactScience: 215450)

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