Read:

• Transfer Pricing at Timken

Submit:

After reading the Transfer Pricing at Timken case (available in the course reader) work with your group to answer the following 5 questions. Your submission should be and include exhibits to support your analysis.

1. The Automotive Division of Timken expressed concern that the transfer pricing policy for steel transfers did not allow the automotive division to exercise its considerable market power as a purchaser of bearings quality steel. Do you think their concerns were valid?
2. Comment on the usefulness of the "Minimum Rule."
3. Examine the margins of both the cone assembly C-400 and the cup CU-260 (Exhibits 9 and 10). Provide an estimate of the relevant cost of manufacturing these cups and cones both from the perspective of the automotive division and from the corporate perspective.(calculation in excel preferred)
4. Did Timken's policy of market-based transfer pricing rules for steel products "work" for the company? Specifically, did this policy provide divisional managers at the steel and automotive division with desirable information and incentives?
5. In the past, Timken valued internal steel transfers at cost. What would be the advantages and disadvantages of cost-based transfer prices compared to market-based prices.