US copiers manufactures both the copiers and the toner cartridges because both are interdependent and though the cost of buying one may seem cheaper, it is actually more cheaper for them to produce both. Another fact that is that it would be difficult for US copiers and another company to synergize their teams to produce the toner cartridges and the copiers at the same rate, quantity and time that could be gotten if both are produced internally. Furthermore, producing both internally will aid them to produce exactly what they want, while it could be difficult to get the exact product they want if it is produced by another company. Management could also overlook and ensure that it is the exact components required that are used in the production of these items. Transfer pricing is another factor to be taken into consideration making it cheaper to produce both internally. Timely supply, better quality control and being able to protect their proprietary rights are also benefits that US copiers has by producing both the copier and toner cartridges internally.
B) MEMO
The transfer price to be determined must be based on the following factors:
• Using the Market price as the transfer price understates the profitability of the product. Synergies between both products should also be considered which should make the transfer price lesser than the market price.
• Both TD and SCD have products that are interdependent, hence the transfer price has to take into consideration this interdependency and choose a transfer price method that will be favorable.
• The firm’s overall value should also be considered. The transfer price to be chosen must be one that will contribute positively to the firm’s overall value in the long run.