Details

Case

Ammar Textile: The Transfer Pricing Problem

Wasif M Khan

INDUSTRY : Textile

AREA : Accounting & Control

ORGANIZATION : Ammar Textile

LENGTH : 14

LUMS No : 01-505-2002-1

PUBLICATION YEAR : 2002

KEYWORDS:

Ammar Textile,Transfer Price Problem,Accounting & Control,Textile,Knitwear,Muscat,Tax,Expansion,Management Control System

DESCRIPTION:

Pakistan's leading knitwear producer is faced with determining the transfer price for fabric sent from its home factory to a new garment facility in Muscat. The Muscat facility was planned to overcome growth constraints at home. The realization of a major tax impact on the new facility heightens the need for reaching agreement on some transfer price. The interests and authorities of the governments of Muscat and Pakistan, the managers of the two facilities, and the owner-manager of Ammar Textiles sparks a management debate on the issue. Apart from the specific decision at hand, the case explores the state of management control systems in growing firms facing strategic decisions such as overseas expansion. The case is intended for graduate level use in a Management Control System course.

LEARNING OBJECTIVES:

1) To illustrate management issues accompanying decentralisation in an industry in early evolution. 2) To show the impact of cost system development in production oriented firms in a developing country. 3) To explore factors affecting transfer pricing policy with multiple interests, limited information and limited observability in a cross-border setting. 4) To demonstrate the effects of environmental and firm generated uncertainty upon managerial decision making.

SUBJECTS COVERED:

Accounting & Control