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Shell evaluates transfer pricing for its internal divisions. In April 2042, the following data is provided: Division A Production Cost: $20 per unit Division B

Shell evaluates transfer pricing for its internal divisions. In April 2042, the following data is provided:

  • Division A Production Cost: $20 per unit
  • Division B Purchase Price from External Supplier: $22 per unit
  • Transfer Price: $21 per unit

Requirements:

  • Calculate the impact of transfer pricing on Division A’s profitability.
  • Calculate the impact of transfer pricing on Division B’s profitability.
  • Prepare a transfer pricing policy recommendation.
  • Discuss the benefits and challenges of using transfer pricing.

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