Transfer Pricing Basics: Arm's Length, Margins & Benchmarking

What you'll build

What you will be able to do

Each lab ends with a concrete result that you build yourself and the checker confirms, cell by cell.

• Map the 2026 intercompany transactions of the fictional Aurora Optics group with SUMIFS: what each entity sells and buys inside the group, and its net position.
• Build Aurora Manufacturing's production cost base, measure its actual mark-up on the goods sold to the distributors and calculate the arm's length price with the comparables' mark-up.
• Measure Aurora Sales West's gross margin per product line and work back from the resale price to the arm's length purchase price it should pay Manufacturing.
• Calculate the three most common profit level indicators for Aurora Sales East over three years, year by year and weighted over the period.
• Screen a search of twelve potential comparable distributors, keep the accepted ones and calculate the arm's length range with QUARTILE.INC and MEDIAN.
• Test Aurora Sales East's operating margin year by year against the interquartile range and calculate the adjustment to the median for the years outside the range.
• Remove the non-chargeable shareholder costs from Aurora Shared Services' cost pool, allocate each service with its own key and add the 5 % mark-up to get each entity's service charge.
• Calculate the year-end true-ups that bring both distributors to the target margin, book the opposite effect at Aurora Manufacturing and chart operating profit before and after.