Question

Vertically integrated firms can use transfer pricing Question 5 options: A) to avoid government price controls. B) to shift profit. C) to avoid paying market prices for inputs. D) as a way to compensate managers for transferring among departments in a vertically integrated firm.

Answer 1

Answer:

The best answer is "B"

To shift profit

Explanation:

Vertically integrated firms are firms that control more than one means through which it converts raw materials to finished products and get it to the consumer.

Transfer pricing is used to value the exchange of an asset or service two products of a vertically integrated firm. It is essentially use to shift profit.

Answer 2

Answer:

Option B. To shift Profit

Explanation:

The reason is that the profit while using the transfer pricing remains the same for the company in the same jurisdictions whereas the use of transfer price could be used as a means to shift the profits earned on that product sold by subsidiary or principle to overcome the double tax on the profits earned and dividends paid.