Good Friends, Good Times, and Transfer Pricing

Directed or Misdirected by

Richard and Ethan

Introduction to Accounting

You might be an Accountant if...

Your idea of trashing your hotel room is refusing to fill out the guest comment card.You refer to your child as Deduction 214.You deduct Exlax as "Moving Expenses."At the movie "Indecent Proposal" you did a NPV calculation. You decide to change your name to a symbol and you choose the double underline "=================".If you have no idea that "GAP" is also a clothing store.

A vastly wealthy, dying man calls his lawyer, doctor and accountant into his bedroom.   With much of his remaining energy he says, "I've made each of your rich over the years from my fees.  In return I'd like you to do me this one final favor.   They say that 'You can't take it with you.'  I want to prove them wrong.   Here's $10,000 cash for each of you.  When I die, I want you to bury it with me."

The client dies several days later.  At the grave site the three men watch closely as they each drop envelopes into the hole as it is being filled in over the coffin.

They decide to have a cup of coffee together and share some stories about the departed.

The lawyer starts grousing, "He was a difficult client, bothering me with nuisance lawsuits and endless contract revisions.   He always argued about my bill and didn't want to reimburse me for expenses.   I threw in only $7,500."

The doctor chimed in, "He was always calling me in the middle of the night to make house calls when he could have taken two aspirin and called me in the morning.  I put $5,000 in the envelope."

The accountant rose indignantly and said, "Why you cheap SOBs, I gave him a check for the full $10,000."

A

A businessman on his deathbed called his friend and said, "Bill, I want you to promise me that when I die you will have my remains cremated."

"And what," his friend asked, "do you want me to do with your ashes?"

The businessman said, "Just put them in an envelope and mail them to the Internal Revenue Service. Write on the envelope, "Now, you have everything."

A young graduate begins working in the office of a manufacturing company.   After a few weeks he has an accounting problem he can't solve. He goes to the Chief Accountant and shows him the problem and asks for help. Later in the day through the open door he watches as the Chief Accountant reads the report, opens his bottom desk drawer and stares down at something in the drawer and then writes the instructions.

Years later the young graduate is now the Office Manager. Again he has a problem, writes it uptakes it to the Chief Accountant. Again he watches through the open door as the Chief Accountant studies the problem. The drawer is opened , the long stare, then the writing of instructions.

The Office Manager puzzled over this for many a long night. What might be in that darn drawer? Years pass. The Chief Accountant is about to retire. The Office Manager comes into say good-bye but his curiosity gets the better of him. All these years I've seen you stare into that bottom drawer. What's in there?

The Chief Accountant says that since you will be my successor I can show you what was left for me by my predecessor when I came here 20 years ago. He opens the drawer.A note is pasted to the bottom of the drawer. It reads: THE DEBITS ARE ON THE SIDE CLOSEST TO THE WINDOW !!

Take-a-ways

• What is transfer pricing?• Why is it used?• What are some of the

difficulties of transfer pricing?

Birch Paper Company

BIRCH PAPER COMPANYPer 1,000 Boxes

West Paper Company: Out-of-Pocket cost to Birch……... $430

Eire Paper, Ltd:…………………………………………… $432Less: Profit to Southern ($90 x .4)……………… $36

Profit to Thompson ($30-$25)……………. 5 41Out-of-pocket cost to Birch………………. $391

Thompson:………………………………………………... $480Less: Profit to Southern ($280 x .4)…………… $112

Profit to Thompson ($480 - $400)……….. 80 192Out-of-pocket cost to Birch………………. $288

Or

Thompson out-of-pocket cost ($400-$280)……………….. $120Southern out-of-pocket cost ($280 x .6)………………….. $168

Total Out-of-pocket………………………………. $288

Why is transfer pricing called the Achilles heel of profit

center management?

Because for transfer pricing to be successful it must be set so that the actions taken by division managers in their

own interest will also be in the best interest of the overall

company

Class Poll

Please go to class poll and cast your vote for which student made

the best “page eliminator” comment (this can be based on funniest,

smartest, most controversial, etc.)