Professional Documents
Culture Documents
Transfer Pricing
Transfer Pricing
appliance
GROUP NAME
PARAG
P PAWAN
A ARSH
R- ROHIT
A- AMRINDER
G- GAGAN
General
study
Appliance
Corporation
case
Organizational chart
Of
GAC
Finance
staff
Board of Directors
president
Engineering Manufacturing
Industrial
Purchasing Marketing
staff
staff
Relations staff
staff
staff
Electric
Motor
division
Stamping
division
Laundry
Equipment
division
Miscellaneous
Appliance
division
Transfer prices
The divisions were expected to deal with one another as
though they were in dependent companies. Parts were to be
transferred at prices arrived at by negotiation between the
divisions. These prices generally were based on the actual
prices paid to outside suppliers for the same or comparable
parts.
These outside prices were adjusted to reflect differences in
design of the outside part from that of the inside part. In
general, the divisions established prices by negotiation
among themselves, but if the divisions could not agree on a
price, they could submit the dispute to the finance staff for
arbitration
Source Determination
$3.00
$2.70
$2.50
$2.40
Refrigeration division :
Based its case on the fact that the division could buy the
thermostatic control units from reliable outside supplier at $ 2.15.
Unjust to make it pay higher price .
Agreement made between EMD and RD that in the event of a
major pricing disparity, the further model requirements will be
sourced to the lowest bidder.
Finance staff review
The finance staff asked purchasing staff to review outside market
situation.
Staff replied there was excess capacity so prices were soft.
If all the corporations requirements were placed with outside
suppliers ; prices would rise to at least $ 2.40 ; excess capacity
would dry up.
Transmission problem
oThe Laundry Equipment Division produce automatic washers.
o Initially , it had purchased its transmission from two sources
- Thorndike Machining corporation and The Gear and
Transmission Division .
oAgreement with Thorndike Machining corporation from 1977
to 1987 to buy one half of its transmission.
oIn 1985, Thorndike Machining corporation notified that it
would not extend the agreement
oThorndike Machining corporation proposed schedule of price
reductions.
Present price
$14.00
Price effective 7/1/85
$13.50
Price effective 7/1/86
$13.00
Price effective 7/1/87
$12.50
Price effective 7/1/88
$12.00
oLow cost transmission at $ 10 would be available by Jan
1,1988
Transmission problem