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

See all articles by Charles D. Bailey

Charles D. Bailey

James Madison University

Denton Collins

Texas Tech University - Rawls College of Business

Date Written: July 31, 2005

Abstract

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.

Suggested Citation

Bailey, Charles D. and Collins, Denton, Goliath Corporation: An Instructional Case in Transfer Pricing Policy (July 31, 2005). Journal of Accounting Education, Vol. 23, pp. 264–276, 2005. Available at SSRN: https://ssrn.com/abstract=773728 or http://dx.doi.org/10.2139/ssrn.773728

Charles D. Bailey

James Madison University ( email )

Harrisonburg, VA 22807
United States
901 484-0867 (Phone)

Denton Collins (Contact Author)

Texas Tech University - Rawls College of Business ( email )

School of Accounting
Lubbock, TX 79409
United States

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