Answer (D) is correct . The calculation of transfer prices in the international arena must be systematic. A scheme for calculating transfer prices for a firm may correctly price the firm’s product in Country A but not in Country B. The product may be overpriced in Country B, causing sales to be lower than anticipated; or, the product may be underpriced in Country B, and the authorities may allege that the firm is dumping its product there.
Answer (A) is incorrect because Properly chosen transfer prices allow firms to attempt to minimize worldwide taxes by producing various parts of the products in different countries and strategically transferring the parts at various systematically calculated prices.
Answer (B) is incorrect because Properly chosen transfer prices allocate revenues and expenses to divisions in various countries. These numbers are used as part of the input for the performance evaluation of each division.
Answer (C) is incorrect because Transfer prices motivate division managers to buy parts and products (from either internal or external suppliers) at the lowest possible prices and to sell their products (to either internal or external customers) at the highest possible prices. Hence, each division has a profit making orientation.
|
