Can a central cash pool work for transfer pricing? The answer is yes

Article Abstract:

The establishment of a central cash pool from which affiliated corporations can withdraw or deposit funds is advocated as a cash management method and a way to effect transfer pricing easily. The trick is to ensure that every cash withdrawal from the pool is accompanied by interest accruals that equal the supplying corporation's cost of funds. Methods for calculating cost of funds amounts for every individual corporation within the consolidated group are explained. Also discussed are accounting methods appropriate to recording and paying dividends from the central cash pool. The cash centralization approach described is purported to be superior to other cash management techniques, because: it provides stricter controls over funds; it allows for more funds with which to take advantage of investment opportunities; and it affords more professional, full-time cash management.

Corporations, Cash management, Cash position (Corporate finance), Controllership

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Transfer pricing in a dynamic market

Article Abstract:

Transfer pricing policies must be responsive to changing market conditions, especially in industries such as semiconductors that are characterized by rapid change. One alternative pricing mechanism is to set the transfer price equal to the opportunity cost of the buying division. The connection between the transfer price mechanism, the product, and its market can be demonstrated by analyzing product life cycle. Guidelines for developing a transfer pricing policy include encouraging price negotiation between buying and selling divisions, basing negotiations on market reference prices, and encouraging divisions to adjust transfer prices on a timely basis. If there are no market reference prices in the early stage of a product life cycle, the transfer price should incorporate outlay costs plus a fixed fee.

Accounting and auditing, Pricing, Product life cycle

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Paragon pricing

Article Abstract:

The two most common types of product costing, absorption costing and variable costing, differ in their accounting for fixed indirect costs. Normal capacity has been used to allocate overhead rather than practical capacity. Paragon pricing uses practical capacity to allocate fixed costs. The Paragon Price, which is a revenue amount, is composed of two parts: the profit margin established by company policy and the cost of the item. Tax benefits resulting from the use of practical capacity make the meticulous computations required worth the effort.

United States, Innovations, Cost accounting

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