Your local fast food chain with two dozen stores uses the co

Your local fast food chain with two dozen stores uses the company\'s internal corporate marketed department to produce signage, print ads, in-store displays, and so forth. When placing an order, store managers are assessed a chargeback (transfer price) that reduces store profitability but increases marketing department profitability. Lately, store managers have been ordering more and more marketing services; the marketing department is swamped, and it cannot afford to hire more staff. What does this indicate about the chargeback rates?

Solution

Transfer pricing is the setting of the price for goods and services sold between controlled (or related) legal entities within an enterprise. For example, if a subsidiary company sells goods to a parent company, thecost of those goods paid by the parent to the subsidiary is the transfer price.

for transfer price even though it is high or low it will not effect the over all group/ organisation profit but might effect the segment wise profit figures.

Here the Marketing dept cannot effort to provide any more services as it would require to invest in new manpower which should be compared with the outsoursed i.e have to take an action over make or buy decision and consider investing in New manpower in marketing for servicing stores.