What Special Problems and Opportunities Arise in Setting Transfer Prices

question 119

Essay

What special problems and opportunities arise in setting transfer prices in an international setting (i.e., for transfers between subunits that operate in different countries)? Hint: In terms of special problems, make sure you reference OECD requirements and practical implementation alternatives for general OECD requirements.)

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Definitions:

Variable Overhead Efficiency Variance

The difference between the actual variable overhead incurred and the expected (standard) overhead based on the efficient use of resources.

Variable Overhead Rate Variance

The difference between the actual variable overhead costs incurred and the expected costs at the standard variable overhead rate.

Standard Variable Overhead Rate

A predetermined rate used in costing to allocate variable manufacturing overhead to individual units of production based on a standard amount of an allocation base, such as direct labor hours or machine hours.

Direct Labor-hours

A measure of the amount of time spent by workers who are directly involved in the manufacturing process.