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Transfer Pricing


You are required to critically evaluate the following statement: “Both Return on Investment (ROI) and Economic Value Added (EVA), when used as performance measures in an organisation, encourage managers to be short-term in their focus and decision making”. If your critical evaluation tends to agree with the statement, briefly outline how the short term nature of such measures can be overcome. Part b. Many organisations use transfer pricing when transferring products between different divisions of the same organisation. You are required to discuss in detail the advantages and disadvantages of each of the following four methods: 1) Market based transfer prices; 2) Full cost transfer prices; 3) Cost-plus a mark-up transfer prices; and 4) Negotiated transfer prices.