Research On The Internal Transfer Pricing Model Of Z Corp.

Internal transfer pricing is an important part of a corporation management.The decision of reasonable transfer pricing is determined to make the responsibility of the enterprise center functions more clearly,to facilitate the formulation of performance appraisal,to fully mobilize the enthusiasm of each responsibility center and work efficiency and work enthusiasm,so as to improve the enterprise in the market environment of overall competitiveness.In this paper,I find the practical significance of the internal pricing through the case analysis of Z Corp that is engaged in the production and sale of petroleum machinery and equipment.It owns four companies-ZFPJ,ZFJX,ZFJC and ZLQX.The stainless-steel-adapter is the only goods for Z Corp.'s internal transaction,which is also the most important products of ZFPJ company.Based on the analysis of the stainless-steel-adapter's value chain and stakeholders,i find the internal transfer pricing method which is used by Z Corp: Cost and wholesale market price are taken into consideration when Z Corp.sets price.And the final price of Z Corp.'s internal trade is based on cost,referencing wholesale pricing.Besides,I also find several problems in Z Corp.'s management:Z Corp.'s managers don't have a clear understanding on internal transfer pricing,the internal-transfer-pricing mechanism is not clear,cost allocation is not reasonable,the ability of management is low and capital management way is not reasonable.To solve these problems,I study the related-factors for Z Corp.,internal-transfer-price.There are several factors--the development strategy of Z Corp.,raw materials procurement activities,production and business activities,interest expense and managers' bargaining power.Then,I put forward a better design of Z Corp's internal-transfer-pricing method.Reducing cost to a reasonable lever with a effective target-cost management,I set toplimit based on the flexible use of cost-plus pricing method,while I find the lowlimit by pushing down the market-price.It is the final lowlimit of internal transfer price that which is the lowest price between three price--net price without sales taxes and fees,the current executive price and unit product price on target cost.Then,ZFPJ and Z Corp.negotiate price to achieve a satisfactory price after they consider fully the break-even price of ZFPJ company.At last,several corresponding measures for the better internal transfer pricing model are proposed.