Professional Documents
Culture Documents
Overview of Chapter
One of the strategic choices that an organisation has to make is related to the degree of
centralisation and decentralisation that is required to achieve organisational objectives and how
the organisation is going to manage its organisational units. Transfer pricing is one mechanism or
process that can be used to manage strategically decentralised organisational units. Although
transfer pricing is traditionally viewed as an economic-optimisation model, the transfer pricing
process can also be used in a strategic manner. For domestic transfer pricing decisions,
organisations should consider the impact on performance of the particular transfer price method
used (market, cost or negotiated) and the implications for the motivation of managers in their
achievement of organisation-wide objectives and the management of risk. With international
MNE transfer pricing, the main risk is taxation risk and this has to be managed by the
organisation. As well as taxation risks, transfer pricing has many other risks associated with it.
These include behaviour risk, operating risks, and market and competition risks. The management
of these risks is an important part of using transfer pricing to control decentralised organisational
units in such a way that they positively contribute to overall organisational value and owner
wealth.
6.1 Identify and explain the main external and internal environmental risks related to an
organisation’s choice of structure.
The predominant external environmental risk is that relating to markets or competition. If an
organisation does not have the flexibility to respond to market changes, including changes in
product availability, supplier and customer demands, and to counteract competitor behaviour,
then organisational value and owner wealth are threatened. Another major source of external
environmental risk arises from the political environment. Regulation and legislation can have a
major impact on the choices made. Further, changes in the global economic environment
influence market, or customer, demand and resource availability. A lack of resources limits the
opportunities the organisational can pursue. Technological developments also alter the
organisation, or its competitors’ potential performance, with failure to adopt new technologies
leading to potential long-term organisational decline.
One key internal environmental risk is the inappropriate choice of a decentralisation or a
centralisation structure to support the organisational strategy. This can result in the non-
achievement of objectives and a decrease in organisational value. Related to this are the risks
associated with the cultural or the human element. These internal environmental risks include
goal incongruence or conflict, where organisational personnel are not working towards achieving
the organisation’s strategies. The competency, skills and abilities of management and other staff
may be inadequate, resulting in an inability to make decisions and incorporate risks. Lastly,
operational risks are present in structural choice decisions. The type of information system the
organisation chooses to use must be appropriate to managing and reporting on its inputs, outputs
and outcomes, as well as other systems relating to physical security.
6.2 Discuss the four primary contingency-based factors that influence structural choice in
organisations.
The four main factors that influence organisational structural choice are its external environment,
size, technology, and its strategies. Each of these is discussed next.
The organisation’s external environment can be separated into three sub-factors. The first,
political, is the impact of resource providers and legislative bodies that can specify certain
structures or resource allocation criteria. The second is societal and relates to the national cultural
norms whereby organisations tend to mirror, to a considerable degree, their nation’s cultural
values. The third is environmental uncertainty. The degree of environmental uncertainty faced by
the organisation results in different structures. High environmental uncertainty tends to result in a
decentralised structure, more-sophisticated accounting and control systems, and changing
accounting roles.
The organisation’s size and the technology used to convert inputs to outputs are also key factors.
As organisations grow and become larger, more-formal control systems are needed to manage the
increase in activities, goods or services and geographical locations. Further, the process, or
technology, used to convert an organisation’s inputs to outputs in order to achieve its objectives
can influence structure along with the type of accounting used and other information provided.
The level and importance of strategic decision-making also influences the choice of
organisational structure, with research suggesting that the more significant the decisions are and
the more managers need to retain control for effective strategy implementation, then the more
centralised the structure will be. Other factors considered to influence structural choice include
complexity, globalisation and the supply chain, with an emphasis on supplier relationships,
customer demands and satisfaction, and maintaining networks.
6.3 Discuss the key advantages and disadvantages of adopting a decentralised structure.
There are several key advantages to adopting a decentralised structure.
1. Managers at lower levels can make and implement key operational decisions in their area
of responsibility and authority.
2. Local managers understand local conditions better and can gather relevant information
faster and in more detail. This reduces the time required for a decision to be made, allowing
them to respond to uncertainties and opportunities more quickly, and reduces the
information overload on senior or executive managers.
3. Upper-level management are then free to focus on the wider strategic issues and overall co-
ordination, and a decentralised structure relieves them of the operational day-to-day
decisions.
4. A decentralised structure also provides a training ground for lower-level managers to gain
experience and skills in managing innovation and risk and helps increase their job
satisfaction and motivation by giving them autonomy.
5. A decentralised structure permits more-meaningful managerial performance evaluation, as
it is hard to perform such an evaluation if the manager has no responsibility or control over
his or her area and the decisions made. Nonetheless, this requires performance evaluation
and reporting mechanisms that only measure what the manager has control over and is
accountable for.
However, there are also some key disadvantages with adopting a decentralisation approach.
1. Local managers may solely focus on their unit’s performance and ignore the consequences
of their actions for other organisational areas.
2. Related to this, managers may ignore organisational objectives and follow their own so as
to improve the performance of their areas of responsibility. However, these objectives can
conflict with those of the organisation as a whole and result in goal incongruence.
3. Further, there could be a possible lack of co-ordination among the organisational unit or
lower-level managers, especially in achieving organisational operating strategies, as they
are now competing with each other.
4. Decentralisation may duplicate some tasks or services unnecessarily, thereby adding to
organisational common costs.
An organisation needs to weigh up the advantages and disadvantages and choose a structure that
supports the achievement of its strategies and objectives.
6.4 Describe the four types of responsibility centres that may be present in an organisation.
The four types of responsibility centres that may be present in an organisation are a cost centre, a
revenue centre, a profit centre, and an investment centre. A cost centre is one where the manager
has control over costs, but not revenues or investment funds. Organisational areas that may be
cost centres include finance, accounting, legal services, human resource and maintenance
departments. Conversely, a revenue centre is one where the unit manager has control only over
the revenues, not the costs or the investment funds.
In a profit centre the unit manager is given responsibility for and control over costs and revenues,
but has no responsibility for investment in operating assets. An example of a profit centre may be
a food company that has soft drink and potato chip divisions, or a telecommunication company
that has mobile phone and landline phone divisions. Lastly, an investment centre is where the unit
manager has control over, and responsibility for, costs, revenues and operating asset investment.
Typically, investment centres are areas such as corporate head-office, or the main office of a
geographical division.
6.5 Define what is meant by the terms “organisational unit” and “transfer price”.
An organisational unit is a part or area of an organisation that has an identifiable manager who is
responsible and accountable for the performance of that area.
A transfer price is the price charged for a good or service that is transferred from one
organisational unit, division or subsidiary to another.
6.6 State the general transfer price rule and outline what it means, in general, for the transfer
price if the selling unit has (a) no excess capacity and (b) excess capacity.
General Transfer Price Rule:
The transfer should take place when the opportunity cost of selling the good or service (the
minimum transfer price) is lower than the opportunity cost of purchasing the good or service (the
maximum transfer price).
This means, that in general, if the selling organisational unit has:
1. No excess or spare capacity, then transfer price will be the market price (if an external
market exists).
2. Excess or spare capacity, then the transfer price will be the marginal or variable cost.
6.8 Define the three main types of transfer prices and, using a table format, outline the
advantages and disadvantages of each.
The three types are:
1. Market-based transfer price – the price the purchasing organisational unit would pay to an
external supplier and the price the selling unit could sell on an external competitive market.
2. Cost-based transfer price – a variable-cost transfer price is the variable cost (per unit) of the
selling organisational unit or division. A variation of the variable cost transfer price is the
marginal cost approach. A marginal cost generally consists of the variable cost, but can
include some fixed costs. A full-cost transfer price is the total cost (per unit) of the product
and is equivalent to the variable plus fixed costs per transferred unit.
3. Negotiated transfer price – the purchasing and selling division negotiate a transfer price
that is between the minimum price (variable cost plus any opportunity costs if relevant) and
the maximum price (the market price).
The advantages and disadvantages of each are given in the following table.
6.9 Explain why the tax implications of transfer pricing are important for a multinational entity,
and list the five methods that can be used.
Multinational entities may select their transfer pricing methods so that they are acceptable to the
local tax authorities rather than choosing the method that supports their organisational objectives
and strategies. In this situation, organisations look for a transfer price that will minimise the tax
they owe by shifting profits from countries with high tax rates to ones with lower tax rates. In
addition, they may wish to avoid resident withholding tax on dividends or gain dividend
imputation advantages, or maximise foreign tax credits.
There are five transfer pricing methods that, in general, an organisation can legally use. These
are:
1. Comparable uncontrolled price (CUP)
2. Resale price method (RPM)
3. Profit split method
4. Cost plus (CP)
5. Comparable profits (CPM).
6.11 Examine how the risks related to sub-optimisation or a lack of organisational goal
congruence, and internal organisational unit competition can influence the achievement of
an organisation’s objectives.
Sub-optimisation or a lack of goal congruence is where each of the independent organisational
unit’s transfer prices are set in such a way by its management so as to maximise organisational
unit profits. However, organisational-unit profit maximisation can adversely affect organisation
profits and thus affect organisational value and owner wealth. Such a focus leads to the objectives
of the organisation being placed second to organisational unit objectives. This generally happens
because there is imperfect competition in the external market. That is, the purchase price from the
external market is greater than the selling units’ variable cost but less than its full cost, or it is
manipulated by organisational unit mangers. One reason for unit managers’ manipulation is that
if the units’ performance evaluation is based on the amount of profit that the organisational unit
earns, then unit managers tend to maximise their profit at the expense of other units and
organisational value. To achieve this maximisation, managers will demand a high transfer price
when selling and a low transfer price when buying. This will cause conflict within the
organisation and can lead to a lack of goal congruency and to sub-optimal behaviour.
Due to the problem of sub-optimisation and the lack of goal congruence, management may be
tempted to dictate the transfer price. This reduces the autonomy of the profit centre. Most text-
books recommend that organisational unit autonomy – that is, the right for managers to make
their own decisions – should be respected even if it results in sub-optimisation. However, is this
in the best interests of the organisation as a whole, especially in relation to transfer pricing’s aim
of motivating organisational unit managers to achieve the organisation’s goals, objectives and
associated strategies?
Transfer pricing can also be used to enhance internal organisational unit competition, as it is
argued that a lack of internal competition between organisational units can be unhealthy. This is
because organisational units may become complacent, fail to keep up with technological and
external environmental changes, and are less likely to attempt to control costs. Internal
competition, however, can potentially reduce co-ordination and co-operation between
organisational members, leading to conflict and disputes. In organisations with high levels of
decentralisation, competition among profit centres, although encouraging unit-management skill
development, autonomy and conformity, can lead to conflict and distorted communications that
distance organisational unit managers from higher-level managers. In this situation, transfer
pricing and accounting provide high-level managers with an image that in the short term the
organisation is performing well. However, the competition encouraged by transfer pricing
mechanisms can be detrimental to the achievement of the long-term organisational objectives. As
a way of mitigating this organisational non-value-adding behaviour, management meetings can
be used to resolve conflicts. These meetings allow the sharing of knowledge related to the market
and earnings, and encourage reciprocity and interdependence between profit centre management.
(b) With excess capacity, the minimum transfer price = $90 – the variable cost. The maximum
transfer price is $140, which is the price Division B can purchase the product for externally.
As the minimum transfer price is less than the maximum price, the transfer should take place
at a price between $90 and $140.
(b) If the senior management team at Middle Island Custom Motorcycles decided that its
divisions should use a negotiated transfer price, calculate the transfer price range that
should be used to determine the transfer price. Briefly explain your answer.
The range of possible prices would be between $3,000 and $4,250.
As the Engine Division has excess capacity, it does not have to forgo external sales to be able to
supply the Assembly Division; therefore, a transfer price of $3,000 will cover its variable costs of
manufacturing and is the theoretically optimum transfer price. However, anything over $3,000
will contribute to the Engine Division’s fixed costs and then profits.
The Assembly Division will be willing to purchase the engines internally if the price does not
exceed $4,250, the price for which it could potentially purchase the engines on the external
market.
Therefore, the two divisions should be willing to negotiate a transfer price between $3,000 and
$4,250. What the final transfer price will be depends on the relative power of the Engine Division
and Assembly Division managers.
(c) Outline the advantages and disadvantages of both a cost-based and a negotiated transfer
price approach and make a recommendation, with reasons, as to which transfer pricing
policy Middle Island Custom Motorcycles should use.
Advantages and disadvantages
Make a recommendation, with reasons, to the Middle Island Custom Motorcycle management.
I would recommend as a starting point a transfer price of $3,000, the variable cost. This is
because the Engine Division has spare or excess capacity and as it is the theoretically optimal
transfer price, it should optimise the economic decisions for the organisation as a whole. Further,
a cost-based transfer price is easy to use and understand and negates the qualitative disadvantages
of a negotiated transfer price.
However, as the Assembly Division will accrue all the benefits of such a transfer, Middle Island
Custom Motorcycle management may wish to use a cost-plus price, to shift some of the benefits
to the Engine Division.
(b) Calculate the maximum transfer price that the Computer Division would be prepared to
accept. Explain your answer.
The maximum transfer price that the Computer Division would be prepared to pay is $21.50,
which is what it can purchase the equivalent micro-motherboards for on the external market.
(c) Discuss, giving reasons, whether the internal transfer should take place.
Yes, the transfer should take place, as both the selling (Motherboard) division variable cost and
market price are below what the Computer (purchasing) Division pays on the external market.
If the Computer Division requires 150,000 or fewer micro-motherboards, then the transfer should
take place at the theoretically optimal transfer price of $11.25, the variable cost per micro-
motherboard, or at some price negotiated between the minimum transfer price and the maximum
transfer price, if management wish to use a negotiated transfer pricing approach.
If the Computer Division requires more than 150,000 micro-motherboards, the first 150,000
should be transferred at the variable cost (or negotiated price), and the amount above at the selling
division’s market price ($22.00 – 0.75 = 21.25). Once the actual number of micro-motherboards
required was known, an average transfer price could be calculated.
(d) Describe how the transfer pricing between the two divisions might change if the
Motherboard Division was in Australia, and the Computer Division was in India.
The reasons for transfer pricing change when a multinational entity is involved. This is because
micro-motherboards are to be transferred across international borders. The focus shifts to the tax
implications of the transfer. Senior management may select their transfer pricing methods so that
they are acceptable to the local tax authorities rather than choosing the method that supports their
organisational objectives and strategies. This means that the organisational goals become
secondary to the tax risks.
The organisation will look for a transfer price that will minimise the tax they owe by shifting
profits from countries with high tax rates to ones with a lower tax rates. In addition, they may
wish to avoid resident withholding tax on dividends or gain dividend imputation advantages, or
maximise foreign tax credits.
This solution has been reproduced with the permission of Ken Bates, Victoria University of Wellington.
The current TP rule is inflexible and will only lead to accurate measurement of divisional
performance if current market prices do happen to be at about cost plus 20% (characteristic 2).
Imposing an inflexible transfer pricing rule on “autonomous” managers could be argued to
undermine their divisional autonomy (characteristic 3) and remove any flexibility to amend prices
in response to changing market conditions (like a recession). Allowing divisional managers
complete autonomy to negotiate TPs would be more aligned with the spirit of giving divisional
managers full autonomy “to run their divisions like an independent business”.
(b) Calculation of the transfer price and key arguments the divisional managers could use.
The Frames division is presently operating at 70% of capacity and even if the intercompany
transfer took place, they would only be up to 90% of capacity. Therefore, no external sales will
be sacrificed in accepting intercompany transfers and hence there is no additional “opportunity
cost” to take into account. Fixed overhead costs are irrelevant because they are the same whether
or not the intercompany transfer takes place.
Any transfer price above the variable cost of $17 is therefore beneficial to Frames. 1
The Pictures division can buy frames of similar quality in the external market for $30 and hence
would want to pay no more than $30 for intercompany transfers (perhaps less, to recognise the
savings that should apply to intercompany transfers).
The range for a negotiated transfer price would therefore be between $17 and $30 in current
circumstances. The price finally agreed upon would depend on the relative power and negotiating
skills of the divisional managers.
Ben Bright’s arguments for a TP of $33:
• Frames division will ‘soon’ be operating at full capacity and intercompany transfer will
displace full price sales at $33 – in such circumstances the theoretically optimum transfer
price is market price of $33.
• In any case, Lifestyle Group divisional managers are given autonomy to run their divisions
‘as independent businesses’ and hence current market price is the logical transfer price.
Ben Bright’s revised arguments for a TP of $30:
• It could be cheaper (for both divisions) to undertake an internal transfer and the saving
should be reflected in a price cheaper than the full market price of $33.
• The Group’s transfer pricing rule was full cost plus 20% = $25 x 1.2 = $30. This remains a
good approximation of market prices and should continue to apply.
• Pictures division’s only alternative supplier will charge $30, so why expect to pay Frames
anything less? Moreover, there would be less risk buying from Frames – the external
supplier has a poor credit rating and might go bust.
• A lower transfer price, e.g. at full cost or below, would undermine the notion of divisional
autonomy, de-motivate the Frames division manager and destroy the current divisional PM
system and bonus structure.
Geraldine Glum’s arguments for a TP of $17:
• General transfer pricing theory (e.g. Hirshliefer) states that the optimum transfer price is the
opportunity cost of the selling division. For a division that has spare capacity at present, the
opportunity cost will be the marginal (variable) cost of units transferred = $17.
• In such recessionary times, and a competitive external market for pictures, the lower the
intercompany transfer price the better as a lower external price should lead to increased
external sales volumes. In the interests of the group as a whole, Frames should transfer at
variable cost so that group profits can be maximised.
Arguments for a TP of between $17 and $25 (full cost):
• As Frames has spare capacity, any price above $17 enables the division to increase
contribution to fixed costs that will not change anyway. Hence some small premium (above
$17) enables Frames division to remain autonomous and enhance ROI.
Note: the above effectively covers the whole negotiating process – only key initial arguments are
needed to answer this question.
1
Note that if Ben Bright had already assumed that the intercompany transfer should take place at the Group
transfer price of full cost plus 20% and included this in his division’s budget, he will expect transfers to be at $30
and anything below this would threaten his bonus. Note also that later in the year, when he expects the division
to be operating at full capacity, he would expect to receive the market price of $33, less any saving from
intercompany trading.
(c) The most appropriate transfer price system to implement during the current recessionary
climate.
It is recommended that Lifestyle Group revises its transfer pricing policy and allows divisional
managers to negotiate their own transfer prices. This would be consistent with their policy of
divisional autonomy (characteristic 3) and would allow managers to make adjustments to TPs in
response to changes in market conditionals and capacity utilisation. Given that managers will be
negotiating “at arm’s length”, this is akin to them running independent businesses and should
result in accurate divisional performance measurement (characteristic 2).
This should lead to compromises that are in the interests of the group as a whole. In the current
case, a transfer price somewhere between $17 and $30 is likely to be negotiated. Any price above
$17 will enable Frames division to benefit from the utilisation of spare capacity and make an
incremental contribution to unchanged fixed costs. Any price below $30 enables Pictures to
reduce costs (compared with the external supplier’s price) and avoid the risk of buying from a
supplier that may go bust.
The lower the input price to Pictures, the more they can shave off the final selling price of
finished pictures; and a price reduction (in a competitive market) should lead to increased output
and possibly increased overall profitability for both divisions of the Lifestyle Group as a whole.
(The precise outcome will depend on the price elasticity of demand for the final product.)
The main deficiencies of the suggestion to use negotiated TPs are the extra time and costs that
will be involved in price negotiations and the fact that the TP will inevitably be above the
theoretically optimum price of $17 (variable cost), perhaps resulting in a higher external price for
pictures and possibly lower overall profits. It is expected that the benefits in respect of motivation
and preserved autonomy of divisional managers will outweigh these disadvantages.
This solution has been reproduced with the permission of Ken Bates, Victoria University of Wellington.
(a) Suggest the theoretically optimum transfer price for transfers of frames between the Frames
division and the Cycles division.
General transfer pricing theory (e.g. Hirshliefer) states that the optimum transfer price is the
opportunity cost of the selling division.
For a division that has spare capacity at present, the opportunity cost will be the marginal
(variable) cost of units transferred. For a division that is operating at full capacity, the opportunity
cost of its output is the variable cost plus lost contribution from external sales lost; this equates
with the external market price.
Unless Cycle division requires 7,000 frames or more, which will only happen if the selling price
that optimised contribution becomes $500, which seems unlikely, the Frames division will be
operating at below full capacity. Hence transfers should theoretically be at variable cost of $100.
(Full cost of $140, less fixed cost per frame of $40)
(b) Produce a revised contribution analysis and clearly state the price–volume combination that
now maximises the Cycle division’s contribution.
With frames transferred at $100 instead of $175, cycles division variable costs becomes $355
($430 – 75). [A full revised costing could be produced, but is not strictly necessary]
Revised contribution analysis for Cycles division:
Selling Price ($) 500 540 580 620
Variable Cost ($) 355 355 355 355
Contribution per cycle ($) 145 185 225 265
Sales demand 8,000 6,600 5,100 3,600
Total Contribution ($) 1,160,000 1,221,000 1,147,500 954,000
The optimum price–volume combination for Cycles division is now a price of $540 and unit sales
of 6,600, and this is expected to yield contribution of $1,221,000 .
(c) Outline the advantages and disadvantages of imposing the theoretically optimum transfer
price, as suggested in part (a) above, on divisional managers.
Advantages of this variable cost transfer price:
• Transfer at variable cost optimises profits for the Group. 2
• The lower (variable-cost) transfer price reduces Cycles’ input cost and results in a lower
sales price to external customers. This increases group revenues and contribution.
• It recognises that Frames division is operating with spare capacity and hence the only
additional cost caused by transfers to Cycles division (the incremental or relevant cost) is the
variable cost of manufacture. Making transfers at this “relevant cost” figure ensures that
Cycles division sets the correct price for the final sales of cycles.
(d) Suggest one alternative transfer pricing solution for Kiwi Cycles Group and advise
management on its advantages and disadvantages compared with the theoretically optimum
transfer price suggested in part (a) above.
Students could suggest one of the following:
• Cost plus transfer price, with sufficient ‘plus’ to allow a profit.
2
Cycles’ contribution raised to $1,221,000 but frames contribution from internal transfers fall to nil. Frames still
makes $60,000 contribution from external sales ((160 – 100) x 1,000 frames), so total group contribution is
$1,282,000. An increase in Group contribution of $73,500.
• Transfer price based on market prices. (So $160, or a little less to reflect lower selling
costs of interdivisional transfers).
• Negotiated transfer pries. (should end up between $100 and $160, depending on power
balance and negotiating skills of managers.)
Key advantages and disadvantages to look for are in line with the characteristics of a good
transfer pricing system as follows (see also the answer to question 6.8):
1. Motivate the division manager to make decisions that are congruent with the objectives of
the group as a whole – e.g. to maximize group profits.
2. Enable reliable and accurate measurement of divisional performance.
3. Ensure that divisional authority and autonomy are preserved and motivation of divisional
managers is maximised.
Example answer:
To avoid turning Frames division into a cost centre for internal transfers and undermining
divisional autonomy (and rendering the current rewards scheme based on profits useless), it will
probably be best to find some compromise transfer price that enables Frames make at least a
contribution to its fixed overheads and perhaps some profit.
Perhaps the external market price of $160 would be a good compromise transfer price,
encouraging Frames to be efficient and produce at a competitive cost.
The key advantages of using the market price as the transfer price for Frames is that it will
increase the profitability of the Frames division and preserve divisional autonomy (and the
incentive scheme based on profits), thus enabling the economic performance of the division to be
measured (against an external benchmark of market prices). The disadvantage is that it will not be
the theoretically optimum price and will increase the input cost to Cycles division, and therefore
might cause the selling price of cycles to outside customers to rise (and the quantity sold to fall).
This may ultimately reduce overall profitability of the group. Perhaps a transfer price a little
below normal market prices should be used, as it ought to be cheaper for transfers to be made
within the group than in the external market (no marketing costs, credit risk, etc.), and this will
avoid some of the upward pressure on the final price.
Note that there is not one “correct” answer to the transfer pricing problem, and hence alternative
recommendations are acceptable as long as they are well justified. Losing up to $73,500 extra
contribution (a 6% increase) may seem a high price to pay to preserve divisional autonomy for
Frames, so a transfer price at variable cost plus a small amount might be acceptable so long as the
rewards scheme was revised so that divisional managers were rewarded on overall group profits
instead of the profits of their own divisions. This would focus managers on “group performance”
and encourage “teamwork” instead of competition between them.
The new proposal will have the following financial impact on Yummy:
Increase in packaging cost: (50,000 × $7) + (10,000 × $9) = $440,000. This means that Yummy’s
profit will reduce by $440,000. In addition, Yummy will have to manage three supplier
relationships instead of one, and by referencing their activity-based costing system, overhead
costs related to the supply chain are likely to increase also.
The MD recognises that the share of profit attributable to the minority shareholder in PoPo will
increase by $125,000 (one quarter of $500,000) and the majority shareholder will equity account
an increase of $375,000 as a result. Overall, the consolidated profit would be expected to decline
by at least ($440,000 – $375,000) = $75,000. The MD expects that the minority shareholder in
PoPo will pressure to accept the new business and require Yummy to seek alternative sources for
their packaging, and since they hold an influential board seat, that argument will be fierce! On
what grounds could this argument be rejected?
How to solve this dispute is challenging, more so because of the presence of the substantial and
influential minority shareholder.
Without this influence, the decision would be more straightforward: provided PoPo covers its
direct costs, it is economically better to sell within the group, because the fixed costs are
unavoidable in the short term. However, where an external selling opportunity exists that is better
for the selling company, they should be allowed to accept this opportunity if they are evaluated as
an investment centre, which, given the shareholding situation, they certainly would be. The
buying company should be required to meet the market ($100 in this instance) or seek alternative
supply elsewhere, also allowing it the freedom of making its own decisions consistent with being
an investment centre. This suggests that the optimal economic solution for the group is not likely
to satisfy either of the respective CEOs, nor will it satisfy the minority shareholder.
The MD could pursue a negotiation around the fact that the market is now likely to move to $100,
so if Yummy meets the market price with PoPo supplying, then the only remaining issue would
be the non-financial difficulties that are incurred in dealing with Yummy – the extreme variability
of its order pattern.
Yummy would do well to investigate the capacity of ‘supplier 3’ to continue to provide at $95,
which appears to be below the market price of the near future. How permanent is that price, and
what capacity does supplier 3 have to continue to meet all or part of Yummy’s needs? If ‘supplier
3’ appears reliable and particularly if it has further capacity, Yummy would do well to switch to it
for 100% of its supply, and then PoPo can accept the new contract at $100 with no ill-feelings
within the group. The MD would need to ask Yummy’s CEO to ascertain the reliability and price
of supplier 3’s product immediately. Without this information about alternative sources, the basis
of any decision is not incomplete.
One further question not explored here is the possibility of different tax regimes for the two
companies. If there is a tax advantage within Vietnam, that would further skew the decision
towards PoPo accepting the profit-increasing solution because of differential tax treatments.
What we can conclude from this discussion is that transfer pricing solutions have both financial
and non-financial elements. When all the financial information is to hand, we can model the
profit situation, but that does not accommodate the non-financial impacts and, most importantly,
the motivational impacts of forcing decisions on managers who may have other incentives in
place.
********
È noto il resto della favola che fece Proserpina, sposa al sire del
tartareo regno.
Restò per tutto ciò sacra a Cerere la Sicilia specialmente, dove que’
fatti s’erano compiuti e dove le furono istituite feste. Roma l’ebbe
pure in reverenza sotto i nomi di Vesta dapprima, quindi della Bona
Dea. Nella festa principale che le si faceva a’ diciannove d’aprile in
suo onore e dicevasi cereale, celebravansi i suoi misteri nella casa
del Console, cui non intervenivano che le donne, pena la morte agli
uomini che introducendovisi li avessero profanati di loro presenza,
ed eran preceduti da otto giorni d’astinenza e di castità, ciò che
veniva detto essere in casto Cereris. — Non v’ha a questo proposito
chi non rammenti, letto che abbia le arringhe di Cicerone, quanto
scandalo e scalpore avesse menato e di quanta calamità fosse
origine la profanazione di que’ misteri fatta da Publio Clodio, che
mentite le spoglie femminili, si introdusse nella casa di Cesare, ove
essi celebravansi, per amoreggiarne la moglie Pompea, altrimenti
troppo vigilata. Scoperto, rumore, come dissi, ne venne per tutta
Roma grandissimo. Cesare, comunque lusingato dagli amici che
Pompea non gli fosse stata infedele, ripudiavala, allegando la moglie
di Cesare non dover pur essere sospettata. Cicerone stesso che ne
avea fatto un capo grosso che mai il maggiore, raccolse odj
implacabili, ond’ebbe poi da Clodio adeguate al suolo e casa e ville
ed esilio dall’Italia, da cui richiamavalo poscia Pompeo, e finalmente
ricercato a morte da Antonio, per istigazione di Fulvia sua moglie, vi
perdeva la vita per mano di sicarj; riempita poi tutta quanta la città di
disordini e stragi.
Nel linguaggio del Lazio, Cerere pigliavasi metaforicamente pel
pane, come Bacco pel vino, onde in Terenzio si legga:
Passo quindi oltre, e appena faccio un cenno del pari degli Dei Lari
Compitali o de’ Crocicchi,
gli altari dei quali vedevansi per appunto sugli angoli de’ viottoli
cittadini; e dei Lari della campagna chiamati perciò rurales [241], non
che degli Dei Penati, protettori del domestico focolare, che avevano
fra le domestiche pareti sacelli (lararium) e sagrificj; ma de’ primi ho
toccato alcun poco eziandio parlando delle vie; de’ secondi accadrà
di dire qualche parola ancora nel Capitolo delle Case.
Cristianesimo.
Disprezzo delle leggi romane ed odio per le altre genti erano infatti
accuse date agli ebrei ed anche a’ primi cristiani, imputati questi
ultimi perfino di sagrificare e mangiare bambini nelle loro agapi;
comunque non occorra qui di provare accadesse proprio allora
perfettamente il contrario, troppo nota la carità di que’ primi seguaci
del Cristo.
Ecco ora come la nuova fede del Nazareno venisse nella Campania
introdotta, stando almeno alla tradizione, che da taluni critici per
altro, i quali la sanno tutta quanta, si vorrebbe infirmare.
«La maggior gloria dell’inclita e nobilissima città di Napoli, scrive
Gaetano Moroni nel suo Dizionario di Erudizione Storico-
Ecclesiastica, è di aver ricevuta la fede cristiana dallo stesso
principe degli Apostoli e primo Sommo Pontefice San Pietro, il quale
partito d’Antiochia per portarsi in Roma a fondare la sua sede, passò
per Napoli, ove trovata Candida inferma, si informò da essa della
religione e costumi de’ napoletani, la guarì dal suo male, ed
istruendola ne’ misteri della religione cristiana, la battezzò. La pia
donna chiese a San Pietro lo stesso benefizio a pro del suo parente
Aspreno, anche infermo, al quale l’apostolo gliela impartì, inviandogli
il suo bastone, che tuttora è alla cattedrale; e portatosi Aspreno da
San Pietro fu da esso guarito, battezzato e consacrato sacerdote e
vescovo della città; e ricevuto il prezioso deposito della fede,
imitando il suo maestro che nell’anno 44 giunse in Roma, istruì il
gregge a sè affidato e verso l’anno 79 passò nel cielo. Vuolsi che ne
fosse successore S. Patrona, uno de’ settantadue discepoli» [243].
Stando a tal tradizione, condita al solito da puerilità e miracoli, il
primo vescovo Aspreno sarebbe morto l’anno stesso della eruzione
vesuviana che seppellì Pompei.
Bulwer, accogliendo egualmente la credenza che in Pompei fosse
già entrata la luce dell’Evangelo, vi immaginò l’interessante episodio
di Olinto e la conversione di Apecide, fratello di Jone, la protagonista
del suo romanzo, alla divina religione di Cristo; ed altrettanto sembrò
opinare nel suo bel libro intorno a Pompei il già per me lodato C.
Augusto Vecchi; nè io poi mi so addurre argomenti che ripugnar
possano alla pietosa sentenza di questi due valentuomini ed egregi
scrittori.
Chi può dire che ne’ quartieri che ancor rimangono a disotterrare di
Pompei, non si abbia a discoprire qualche cosa la qual confermi una
tale supposizione? La parte ancor non nota è quella che doveva
essere abitata dalle classi più povere; e tra i più poveri e nelle menti
men colte metteasi d’ordinario più prestamente la luce delle
evangeliche dottrine.
All’avvenire pertanto è riserbato ben anco lo sciogliere una tale
questione, che finor non ripugna ammettersi del modo che ho detto.
CAPITOLO IX.
I Fori.
Dalle quali iscrizioni rilevasi come si potessero nel Foro erigere per
diversi meriti più d’una statua allo stesso personaggio.
Era qui che i Pompejani, oltre de’ Comizj ed oltre della trattazione
de’ più importanti affari di publico e privato diritto, non che de’ negozj
più importanti al loro commercio, dovevano celebrare le maggiori
solennità; qui le processioni delle Canefore, di cui toccai parlando
del tempio di Venere nel Capitolo precedente; qui avvenivano i
giuochi de’ gladiatori, quando a spettacoli più grandi non fossero
chiamati nell’anfiteatro, siccome vedremo, favellando de’ Teatri, più
avanti.
Chiuderò il dire intorno al Foro Civile pompejano col tener conto
della pittura che fu rinvenuta sulla parete che cinge il portico interno
verso settentrione, fatta con molta grazia e varietà, e suddivisa in
parecchi comparti.
In uno di questi è rappresentata l’origine della commedia ed una
Baccante: in altro la scena di Ulisse quando si presenta alla sposa
Penelope, in sembianza di vecchio mendicante e col falso nome di
Etone, e non ne è riconosciuto: subbietto spiccato alla Odissea di
Omero e del quale avverrà che faccia novella menzione quando avrò
a trattare in un capitolo successivo del Calcidico sotto altro aspetto,
cioè come pertinenza della Basilica.
Era consuetudine generale del resto che sotto i portici del Foro si
pingessero per lo più gloriosi fatti della nazione, ad imitazione di
Grecia, dove sotto i portici dell’agora ateniese era dipinta la battaglia
di Maratona da Milziade valorosamente e gloriosamente combattuta,
perchè servissero al popolo di generoso incitamento e scuola.