Transfer pricing strategies and lot sizing decisions.: An article from: Journal of Managerial Issues

This digital document is an article from Journal of Managerial Issues, published by Pittsburg State University - Department of Economics on June 22, 1999. The length of the article is 5155 words. The page length shown above is based on a typical 300-word page. The article is delivered in HTML format and is available in your Amazon.com Digital Locker immediately after purchase. You can view it with any web browser.

From the author: The advantages of continuous flow manufacturing and JIT inventories have been well documented in the literature. However, not all manufacturing companies have been able to remove all of the "rocks." These companies must still use work-in-process inventories to decouple different steps in the manufacturing process and finished goods inventories to decouple manufacturing operations from distribution operations. Decentralized segments of a company often use transfer prices as part of the decision-making process. This article considers how different treatments of setup costs in the determination of a transfer price will affect lot size and order quantity decisions and company profitability. If the transfer price is set to reflect variable manufacturing cost plus setup costs as a function of run size, the local optimum for the independent company segments and the company's global optimum are the same. Use of a single transfer price will always induce the company to suboptimize.

Citation Details
Title: Transfer pricing strategies and lot sizing decisions.
Author: Steven F. Bolander
Publication:Journal of Managerial Issues (Refereed)
Date: June 22, 1999
Publisher: Pittsburg State University - Department of Economics
Volume: 11 Issue: 2 Page: 155(1)

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