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Omega is an investment advisory firm specializing in pensions for wealthy people located in Geneva. The company has offices i

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Answer #1

1.The methods of transfer prices are as follows:-

Traditional transaction methods:

  • CUP method
  • Resale price method
  • Cost plus method

Transactional profit methods:

  • Transactional net margin method (TNMM)
  • Transactional profit split method.

2. Recalculation of profits assuming the Italian manager's proposal:-

Omega Inc.
Profits in Euro by Offices
Current Year
Germany France Italy
No. of Investment Advisors 14 11 9
Revenue 16,000,000 14,000,000 20,000,000
Operating Expenses 12,670,000 11,200,000 16,300,000
Central Services (Total 6,000,000) 2,470,588 1,941,177 1,588,235
Profit (Total 3,830,000) 859,412 858,823 2,111,765

3. The Italian manager's proposal is not fair because the Headquarter in Geneva is providing IT, Marketing, Accounting and Payroll Services. Only Payroll service is dependent on the number of advisors in each office.

4. The Italian manager is concerned because the revenue of Italian office is the most, with the least number of investment advisors.

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