BUS 202 Lecture 30: May 3rd
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Department
BUS - Business Administration
Course
BUS 202
Professor
Nick Ross
Semester
Spring

Description
May 3rd Wednesday, May 3, 2017 9:18 AM • Transfer pricing ○ When one direction sells goods or services to another within a company ○ The actual price doesn’t matter ○ There can be really important incentive effects ○ Negotiated transfer price ○ Goal: § Will trade occur and if so at what range of prices? • GE Turbine Jets ○ Sells Turbine To Receives Money From ○ Turbine info: Seller § □ Capacity = 25 engines □ Outside selling price: 45,000 □ Variable cost: 38,000 ○ Jed division info: § Buyer □ Buy 7 turbines a year □ Currently pay $45,000 per turbine ○ Can you see why it might be good for GE to buy the turbine from their own division? § Ddd ○ Situation #1: § Turbine producing § Selling 15 § Buyer: □ TP <= $43,000 § Seller: □ TP >= $38,000 § Trade occurs at: □ 38,000 <= TP <= 43,000 ○ Situation #2: § Producing and selling 25 turbines § Buyer: TP <= 43,000 Seller: TP >= 45,000 May 3rd Wednesday, May 3, 2017 9:18 AM • Transfer pricing ○ When one direction sells goods or services to another within a company ○ The actual price doesn’t matter ○ There can be really important incentive effects ○ Negotiated transfer price ○ Goal: § Will trade occur and if so at what range of prices? • GE Turbine Jets ○ Sells Turbine To Receives Money From ○ Turbine info: Seller § □ Capacity = 25 engines □ Outside selling price: 45,000 □ Variable cost: 38,000 ○ Jed division info: § Buyer
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