Scenario 2

Conglomerate Co. owns businesses around the world. Two of its subsidiaries, Gold and

Jewelry, frequently do business together. Gold is a mining company that extracts gold

and sells it on a commodity exchange. Jewelry crafts high-end jewelry using a variety of

precious metals and gems.

Gold and Jewelry have always performed transactions at market price. Each company

is evaluated separately and there are no cost savings as a result of having the same

parent.

1.What is the transfer pricing strategy being used?

2.

How does the strategy impact management and the company as a whole?

3.

What advice would you give to the company?