Goliath Corporation: An Instructional Case in Transfer Pricing Policy
Journal of Accounting Education, Vol. 23, pp. 264–276, 2005
Posted: 1 Aug 2005 Last revised: 27 Aug 2013
Date Written: July 31, 2005
This case illustrates some of the issues associated with setting firms’ transfer pricing policies. The simulation requires students to assume the roles of top management and divisional management or Goliath Corporation in negotiating transfer prices. The student playing the role of top management first selects a transfer pricing policy from four possible mechanisms: market-based, cost-based, negotiated, and dual-pricing. Given the top manager’s policy choice, divisional managers are then constrained to use that policy as they decide whether to purchase internally or externally based on their respective negotiations. In each negotiation, there is an ex ante best decision for Goliath as a whole. The case is thus useful in demonstrating how managers’ transfer price policy choices can lead to bad sourcing decisions.
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