PRICING AND TRANSFER

PRICING

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

Referensi Materi 10

◼ Garrison, Ray H., Eric Noreen and

Peter C. Brewer. 2012. → Chapter 11
(Appendix 11A) & Appendix A
 3

SUB BAHAN KAJIAN

1. Pricing
2. Transfer pricing (variable cost, full
cost, market price, negotiated price)
3. International transfer pricing.
1. Pricing
 Pricing
• Pricing atau penentuan harga jual adalah
penentuan atau perhitungan harga jual
atas produk yang dihasilkan oleh
perusahaan.

• Selain costing (penentuan harga pokok),

pricing merupakan alat yang penting
dalam akuntansi manajemen karena
menyangkut daya saing produk
perusahaan di pasaran.
5
 Pricing Policies
1. Cost-based pricing
– Established using “cost plus markup” or “cost
plus pricing”.

2. Target costing and pricing

– Determine the cost of a product or service
based on the price (target price) that customers
are willing to pay
– Effectively used in conjunction with marketing
decisions
• Penetration pricing
• Price skimming
6
 1) Cost-Plus Pricing
AudioPro Company sells and installs audio
equipment in homes, cars, and trucks.
AudioPro’s income statement for last year is as
follows:
Revenues $350,350
Cost of goods sold:
Direct materials $122,500
Direct labor 73,500
Overhead 49,000 (245,000)
Gross profit $105,350
Selling and administrative expenses ( 25,000)
Operating income $ 80,350
7
Cost-Plus Pricing

The firm wants to earn the same amount of profit on each

job as was earned last year:

Markup on COGS = (Selling and administrative expenses

+ Operating income) ÷ COGS
Markup on COGS = ($25,000 + $80,350) ÷ $245,000
Markup on COGS = 0.43 or 43%

8
Cost-Plus Pricing

The markup can be calculated using a variety of bases.

The calculation for markup on direct materials is as
follows:

Markup on DM = (Direct labor + Overhead + Selling and

administrative expense + Operating
income) ÷ Direct materials
Markup on DM = ($73,500 + $49,000 + $25,000 +
$80,350) ÷ $122,500
Markup on DM = 1.86 or 186%

9
Cost-Plus Pricing

AudioPro wants to expand the company’s product line to

include automobile alarm systems and electronic car door
openers. The cost for the sale and installation of one
electronic remote car door opener is as follows:

Direct materials (component and two remote controls) $ 40.00

Direct labor (2.5 hours x $12) 30.00
Overhead (65% of direct labor cost) 19.50
Estimated cost of one job $ 89.50
Plus 43% markup on COGS 38.49
Bid price $127.99

10
Contoh:
Manajer pemasaran PT X sedang mempertimbangkan penentuan harga jual
produk A untuk tahun anggaran yang akan datang. Menurut anggaran,
perusahaan direncanakan akan beroperasi pada kapasitas normal sebanyak
1.000.000 kg dengan taksiran biaya penuh (full cost) untuk tahun anggaran
yang akan datang sebagai berikut:

Biaya Produksi Rp3.000.000.000

Biaya Administrasi dan Umum Rp 200.000.000
Biaya Pemasaran Rp 300.000.000
Total biaya penuh (full costing) Rp3.500.000.000

Total aset yang diperkirakan pada awal tahun anggaran adalah sebesar
Rp4.000.000.000 dan laba yang diharapkan yang dinyatakan dalam tingkat
pengembalian investasi (rate of return on investment) adalah sebesar 25%.

Diminta:
Tentukan harga jual per kg dengan menggunakan metode Cost-Plus Pricing
berdasarkan Pendekatan
1. Full Costing
2. Variable Costing
1. FULL COSTING
a. Berdasarkan Biaya Produksi

Perhitungan Markup:
Biaya Administrasi dan Umum Rp 200.000.000
Biaya Pemasaran Rp 300.000.000
Laba yang diharapkan (25% x Rp 4.000.000.000) Rp1.000.000.000 +
Jumlah Markup (A) Rp1.500.000.000

Biaya Produksi (B) Rp3.000.000.000

% Markup = (A : B) = (Rp1.500.000.000 : Rp3.000.000.000) x 100%

= 50% dari Biaya Produksi
Markup = 50% x Rp3.000.000.000 = Rp1.500.000.000

Perhitungan Harga Jual:

Biaya produksi Rp3.000.000.000
Markup Rp1.500.000.000 +
Jumlah harga jual Rp4.500.000.000

Volume produk = 1.000.000 kg

Harga Jual per kg = Rp4.500.000.000 : 1.000.000 kg = Rp4.500/kg

b. Berdasarkan Total Biaya

Perhitungan Markup:
Laba yang diharapkan (25% x Rp 4.000.000.000) Rp1.000.000.000 +
Jumlah Markup (A) Rp1.000.000.000

Total Biaya (B) Rp3.500.000.000

% Markup = (A : B) = (Rp1.000.000.000 : Rp3.500.000.000) x 100%

= 28,57% dari Total Biaya
Markup = 28,57% x Rp3.500.000.000 = Rp1.000.000.000

Perhitungan Harga Jual:

Total Biaya Rp3.500.000.000
Markup Rp1.000.000.000 +
Jumlah harga jual Rp4.500.000.000

Volume produk = 1.000.000 kg

Harga Jual per kg = Rp4.500.000.000 : 1.000.000 kg = Rp 4.500/kg

2. VARIABLE COSTING

Dari data di atas, rincian biaya berdasarkan perilakunya adalah sebagai berikut:

Biaya Variabel:
Biaya produksi Rp2.000.000.000
Biaya administrasi dan umum Rp 50.000.000
Biaya pemasaran Rp 50.000.000
Total Biaya Variabel Rp2.100.000.000
Biaya Tetap:
Biaya produksi Rp1.000.000.000
Biaya administrasi dan umum Rp 150.000.000
Biaya pemasaran Rp 250.000.000
Total Biaya Tetap Rp1.400.000.000
Total Biaya Rp3.500.000.000

Perhitungan Markup:
Biaya Tetap Rp1.400.000.000
Laba yang diharapkan (25% x Rp 4.000.000.000) Rp1.000.000.000 +
Jumlah Markup (A) Rp2.400.000.000

Biaya Variabel (B) Rp2.100.000.000

% Markup = (A : B) = (Rp2.400.000.000 : Rp2.100.000.000) x 100%
= 114,29% dari Biaya Variabel
Markup = 114,29% x Rp2.100.000.000 = Rp2.400.090.000

Perhitungan Harga Jual:

Biaya variabel Rp2.100.000.000
Markup Rp2.400.090.000 +
Jumlah harga jual Rp4.500.090.000

Volume produk = 1.000.000 kg

Harga Jual per kg = Rp4.500.090.000 : 1.000.000 kg = Rp4.500,09

= Rp 4.500/kg
 2) Target Costing and Pricing
• Determine the cost of a product or service based on the
price that the customers are willing to pay.

Other installers price the remote car door opener at $110.

Possible actions:

Direct materials (component and two remotes) $ 40.00

Include one remote instead of two $35.00
Direct labor (2.5 hours x $12) 30.00
Train workers to reduce time (2 hours x $12) 24.00
Overhead (65% of direct labor cost) 19.50
Reduce overhead (50% of direct labor cost) 12.00
Estimated cost of one job $ 89.50
Revised cost of one job $ 71.00
Plus 43% markup on COGS Bid price is now 38.49 30.53
Bid price competitive; markup $127.99 $101.53
preserved 16
2. Transfer pricing
 Key Concepts/Definitions

A transfer price is the price

charged when one segment of
a company provides goods or
services to another segment of
the company.

The fundamental objective in

setting transfer prices is to
motivate managers to act in the
best interests of the overall
company.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 19

Transfer Pricing
• Transfer pricing is the determination of an exchange
price for a intra-organizational transfers of goods
or services (e.g., Division A “sells” subassemblies to
Division B).

• Products can be final products sold to outside

customers (e.g., batteries for automobiles) or
intermediate products (e.g., components or
subassemblies).

• Transfers of products and services between business

units is most common in firms with a high degree of
vertical integration.
Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008
 20

Transfer Pricing Objectives

• The objectives of transfer pricing are the same as
those for evaluating the performance of SBUs:
– To motivate managers
– To provide an incentive for managers to make decisions
consistent with the firm’s goals
– To provide a basis for fairly rewarding managers

• Specific international issues include:

– Minimization of customs charges
– Minimize total (i.e., worldwide) income taxes
– Currency restrictions

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

 21

Transfer Pricing Methods

1. At cost
a. Variable cost (standard or actual), with or
without a mark-up for “profit”
b. Full cost (standard or actual), with or without
a markup for “profit”

2. Market price (perhaps reduced by any internal

cost savings realized by the selling division)

3. Negotiated price between buyer and selling

units, perhaps with a provision for arbitration
Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008
 1) Transfers at the Cost

Many companies set transfer prices at either

the variable cost or full (absorption) cost
incurred by the selling division.

Drawbacks of this approach

include:
1. Using full cost as a transfer
price and can lead to
suboptimization.
2. The selling division will never
show a profit on any internal
transfer, unless using cost
plus markup.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 2) Transfers at Market Price

A market price (i.e., the price charged for an

item on the open market) is often regarded as
the best approach to the transfer pricing
problem.
1. A market price approach works
best when the product or service
is sold in its present form to
outside customers and the
selling division has no idle
capacity.
2. A market price approach does
not work well when the selling
division has idle capacity.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 3) Negotiated Transfer Prices

A negotiated transfer price results from discussions

between the selling and buying divisions.
Advantages of negotiated transfer Range of Acceptable
prices: Transfer Prices
1. They preserve the autonomy of Upper limit is
determined by
the divisions, which is consistent
the buying
with the spirit of decentralization. division.
2. The managers negotiating the
transfer price are likely to have
much better information about Lower limit is
the potential costs and benefits determined by
of the transfer than others in the the selling
company. division.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Harris and Louder – An Example

Assume the information as shown with

respect to Imperial Beverages and Pizza
Maven (both companies are owned by Harris
and Louder).
Imperial Beverages:
Ginger beer production capactiy per month 10,000 barrels
Variable cost per barrel of ginger beer £8 per barrel
Fixed costs per month £70,000
Selling price of Imperial Beverages ginger beer
on the outside market £20 per barrel
Pizza Maven:
Purchase price of regular brand of ginger beer £18 per barrel
Monthly comsumption of ginger beer 2,000 barrels

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Harris and Louder – An Example

The selling division’s (Imperial Beverages) lowest acceptable transfer

price is calculated as:
Variable cost Total contribution margin on lost sales
Transfer Price  +
per unit Number of units transferred

Let’s calculate the lowest and highest acceptable

transfer prices under three scenarios.
The buying division’s (Pizza Maven) highest acceptable transfer price is
calculated as:
Transfer Price  Cost of buying from outside supplier
If an outside supplier does not exist, the highest acceptable transfer price
is calculated as:
Transfer Price  Profit to be earned per unit sold (not including the transfer price)

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Scenario 1

If Imperial Beverages has sufficient idle capacity (3,000

barrels) to satisfy Pizza Maven’s demands (2,000 barrels)
without sacrificing sales to other customers, then the lowest
and highest possible transfer prices are computed as follows:

Selling division’s lowest possible transfer price:

£0
Transfer Price  £8 + = £8
2,000

Buying division’s highest possible transfer price:

Transfer Price  Cost of buying from outside supplier = £18

Therefore, the range of acceptable

transfer price is £8 – £18.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Scenario 2

If Imperial Beverages has no idle capacity (0 barrels) and must

sacrifice other customer orders (2,000 barrels) to meet Pizza
Maven’s demands (2,000 barrels), then the lowest and highest
possible transfer prices are computed as follows:
Selling division’s lowest possible transfer price:
( £20 - £8) × 2,000
Transfer Price  £8 + = £20
2,000

Buying division’s highest possible transfer price:

Transfer Price  Cost of buying from outside supplier = £18

Therefore, there is no range of

acceptable transfer prices.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Scenario 3

If Imperial Beverages has some idle capacity (1,000 barrels)

and must sacrifice other customer orders (1,000 barrels) to
meet Pizza Maven’s demands (2,000 barrels), then the lowest
and highest possible transfer prices are computed as follows:
Selling division’s lowest possible transfer price:
( £20 - £8) × 1,000
Transfer Price  £8 + = £14
2,000

Buying division’s highest possible transfer price:

Transfer Price  Cost of buying from outside supplier = £18

Therefore, the range of acceptable

transfer price is £14 – £18.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Evaluation of Negotiated Transfer Prices

If a transfer within a company would result in

higher overall profits for the company, there is
always a range of transfer prices within which
both the selling and buying divisions would
have higher profits if they agree to the
transfer.

If managers are pitted against each other

rather than against their past
performance or reasonable benchmarks,
a noncooperative atmosphere is almost
guaranteed.

Given the disputes that often accompany

the negotiation process, most companies
rely on some other means of setting
transfer prices.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

Divisional Autonomy and Suboptimization

The principles of
decentralization suggest
that companies should
grant managers autonomy
to set transfer prices and
to decide whether to sell
internally or externally,
even is this may
occasionally result in
suboptimal decisions.
This way top management
allows subordinates to
control their own destiny.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 32

Transfer Pricing Example

The High Value Computer (HVC) Company
Key assumptions:
– Manufacturing unit can buy the x-chip inside or outside
– x-chip can sell inside or outside
– x-chip unit is at full capacity (150,000 units)
– One x-chip is needed for each computer manufactured
Other Information:
– Unit selling price of computer = $850
– Variable manufacturing costs (excluding x-chip) = $650
– Variable unit manufacturing cost of x-chip = $60
– Price of x-chip sold to outside supplier = $95
– Outside supplier price of x-chip = $85
– Variable cost to make the outside chips compatible = $5
– Variable selling cost for HVC to sell its chip = $2
Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008
 33

Transfer Pricing Example (continued)

INTERNAL INTERNAL TO THE EXTERNAL
FOREIGN FIRM--DOMESTIC

X-Chip Price = $95 Purchaser

Suppliers of Unit of X-Chips
Parts and
Components
Manu- Price = Transfer Price = ?
facturing
Unit
Seller of
Sales
X-Chips
Unit
Sales
Unit

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

 34

Option 1:
X-Chip Unit Sells to Outside Supplier

Contribution Income Statement (000s omitted)

150,000 computers
Computer X-Chip
Mfg. Unit Unit Total
Sales ($850, $95) $127,500 $14,250 $141,750
Less: Variable costs
X-chip ($85 + $5) $13,500 $13,500
Other ($650, $60 + $2) $97,500 $9,300 $106,800
CM $16,500 $4,950 $21,450

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

 35

Option 2:
X-Chip Unit Sells Inside

Computer X-Chip
Mfg. Unit Unit Total
Sales ($850, $60) $127,500 $9,000 $136,500
Less: Variable costs
x-chip ($60) $9,000 $9,000
Other ($650, $60) $97,500 $9,000 $106,500
CM $21,000 $21,000

The firm benefits more from Option 1

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

 36

Transfer Pricing Example:

Summary Analysis
 Is there an outside supplier?

– HVC has an outside supplier, so we must

compare the inside seller’s variable costs to the
outside seller’s price

 Is the seller’s variable cost less than the

market price?

– For HVC, it is, so we must consider the utilization

of capacity in the inside selling unit
Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008
 37

Transfer Pricing Example:

Summary Analysis (continued)

 Is the selling unit operating at full capacity?

– For HVC, it is, so we must consider the contribution
of the selling unit’s outside sales relative to the
savings from selling inside. Again, for HVC, the
contribution of the selling unit’s outside sales is $33
per unit, which is higher than the savings of selling
inside ($30), so from the standpoint of the company
as a whole, the selling unit should choose outside
sales and make no internal transfers.

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

 38

Comparing Transfer Pricing Methods:

Full Cost

Advantages Limitations
 Easy to implement—  Irrelevance of fixed cost in
data already exist for short-term decision
financial reporting making; fixed costs should
purposes be ignored in the buyer’s
 Intuitive and easily choice of whether to buy
understood inside or outside the firm
 Preferred by tax  If used, should be
authorities over variable standard rather than
cost actual cost

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

 39

Comparing Transfer Pricing Methods:

Variable Cost

Advantage Limitation
The relatively low Unfair to the seller if
transfer price encourages the seller is a profit or
buying internally (the investment SBU; that is,
correct decision from no “profit” on the
the overall firm’s
standpoint when there transfer is recognized
is excess capacity)

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

 40

Comparing Transfer Pricing Methods:

Market Price
Advantages Limitations
 Helps preserve  Often intermediate
subunit autonomy products have no
 Provide for the selling market price
unit to be competitive  Should be adjusted for
with outside suppliers cost savings such as
 Has arm’s-length reduced selling costs,
standard desired by no commissions, etc
international taxing
 Can lead to short-term
authorities
sub-optimization
Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008
 41

Comparing Transfer Pricing Methods:

Negotiation Price

Advantages Limitations
 Need negotiation rule
May be the most and/or arbitrations
practical approach procedure, which can
when significant reduce autonomy
conflict exists
 Potential tax problems;
Is consistent with may not be considered
the theory of “arm’s length”
decentralization
 Potential sub-optimization
(dysfunctional decisions)

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

 42

Choosing a Transfer
Pricing Method

• Firms can use two or more methods, called dual

pricing, one method for the buying unit and a
different one for the selling unit
• From top management’s perspective, there are
three considerations in setting the transfer price:

– Is there an outside supplier?

– Is the seller’s variable cost less than the market price?
– Is the selling unit operating at full capacity?

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

3. International transfer pricing
 International Aspects of Transfer Pricing

Transfer Pricing
Objectives

Domestic
• Greater divisional autonomy
• Greater motivation for managers
• Better performance evaluation
• Better goal congruence
International
• Less taxes, duties, and tariffs
• Less foreign exchange risks
• Better competitive position
• Better governmental relations

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 45

International Tax
Issues in Transfer Pricing
• Survey evidence: more than 80% of multinational firms
see transfer pricing as a major international tax issue,
and more than half of these firms said it was the most
important issue.

• Because of international tax treaties, an “arm’s-

length standard” is the general rule.

• The arm’s-length standard calls for setting transfer

prices to reflect the price that unrelated parties
acting independently would have set.

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

 46

Methods for Applying the “Arm’s-Length”

Standard for International Transfer Pricing
• The comparable price method is the most
commonly used and most preferred method by
tax authorities
– This method establishes an arm’s-length price by
using the sales prices of similar products made by
unrelated parties
• The resale price method is used when little value
is added and no significant manufacturing
operations exist
– This method based on an appropriate markup using
gross profits of unrelated firms selling similar
products
Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008
 47

Applying the Arm’s-Length

Standard (continued)

• The cost-plus method determines the transfer price

based on the seller’s costs plus a gross profit %
determined by comparing the seller’s sales to those of
unrelated parties or comparing unrelated parties’ sales
to other unrelated parties

• Advance pricing agreements (APAs) are

agreements between the IRS and the firm using
transfer prices that establish an agreed-upon transfer
price (to save time and avoid costly litigation)

Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies 2008

The End