Transfer Pricing Takes Place When MNCs Require the Local Affiliate

question 39

Multiple Choice

Transfer pricing takes place when MNCs require the local affiliate

• A) to purchase inputs from other subsidiaries at prices the parent sets to maximize its global profits.
• B) to purchase inputs from other domestic suppliers at competitive local prices.
• C) to replace local managers to foreign managers.
• D) to pay fees for any technology that is transferred.
• E) to drive established host-country firms out of business.

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Definitions:

Fixed Expenses

Costs that do not change regardless of the level of production or business activity.

Break-even Sales

The amount of revenue required to cover total fixed and variable costs, resulting in zero profit or loss.

Variable Expenses

Costs that fluctuate with the level of output or sales, such as raw materials and sales commissions.

Fixed Expenses

Costs that remain constant over a period and are not affected by changes in business activity levels.