Transfer pricing - Examples. 1. Del Norte Paper Company.
1. First the manager is German and, thus, follows the rules. That is to say, the corporation wants KEA-priced and DNP-produced linerboard used and that’s exactly what he’ll do
2. A second possible reason is that the German subsidiary, like the Italian one, is viewed and measured as a profit center. Thus, the manager may simply not wish to show a negative profit contribution on each ton shipped. As can be seen below, both subsidiaries would show a loss if they used KEA-priced linerboard
3. Finally, is the hypothesis that the German manager full well knows what he’s doing. He may simply not want this business. He is quite possibly either at or near capacity, or believes that he will be at such a position before the order could be filled.