Greetings Inc.: Transfer Pricing Issues Developed by Tliomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel, University of Wisconsin-Milwaukee The Business Situation Two years ago, prior to a major capital-budgeting decision (see Case 4), Robert Burns, the president of Greetings Inc., faced a challenging transfer pricing issue. He knew that Greetings store managers had heard about the ABC study (see Case 2) and that they knew a price increase for framed items would soon be on the way. In an effort to dissuade him from increasing the transfer price for framed prints, several store managers e-mailed him with detailed analysos show- ing how framed-print sales had given stores a strong competitive position and had increased revenues and profits. The store managers mentioned, however that while they were opposed to an increase in the cost of framed prints, they were looking forward to a price decrease for unframed prints. Management at Wall Dcor was very interested in changing the transfer pric- ing strategy. You had reported to them that setting the transfer price based on the product costs calculated by using traditional overhead allocation measures had been a major contributing factor to its non-optimal performance. Here is a brief recap of what happened during your presentation to Mr. Burns and the Wall Decor managers. Mr. Burns smiled during your presentation and graciously acknowledged your excellent activity-based costing (ABC) study and Type here to search Greetings Inc.: Transfer Pricing Issues Developed by Tliomas L. Zeller, Loyola University Chicago, and Paul D. Kimmel, University of Wisconsin-Milwaukee The Business Situation Two years ago, prior to a major capital-budgeting decision (see Case 4), Robert Burns, the president of Greetings Inc., faced a challenging transfer pricing issue. He knew that Greetings store managers had heard about the ABC study (see Case 2) and that they knew a price increase for framed items would soon be on the way. In an effort to dissuade him from increasing the transfer price for framed prints, several store managers e-mailed him with detailed analysos show- ing how framed-print sales had given stores a strong competitive position and had increased revenues and profits. The store managers mentioned, however that while they were opposed to an increase in the cost of framed prints, they were looking forward to a price decrease for unframed prints. Management at Wall Dcor was very interested in changing the transfer pric- ing strategy. You had reported to them that setting the transfer price based on the product costs calculated by using traditional overhead allocation measures had been a major contributing factor to its non-optimal performance. Here is a brief recap of what happened during your presentation to Mr. Burns and the Wall Decor managers. Mr. Burns smiled during your presentation and graciously acknowledged your excellent activity-based costing (ABC) study and Type here to search
