Discuss the impact of Sinopec’s new transfer pricing policy on inter- segment vis-à-vis external sales of crude before and after the year 2000.
The disparity between the price that Sinopec paid to buy crude and the price it received for selling crude increased with each year. Between 2000-2002, the price that Sinopec paid to buy crude fell 14% from RMB 1825 per ton to RMB 1574 per ton. But the price that Sinopec received for external sales fell 29% from RMB 1664 per ton to RMB 1189 per ton. To what extent could this be explained by quality differences and transportation costs?
3. What recommendations would you make to Sinopec regarding its transfer pricing policy?
© December 2003, I.P.L. Png