2. What methods should be used to set Capitool’s transfer prices and who should be involved in the process? The Capitool Company, with headquarters and main manufacturing plant in Racine, Wisconsin, in the United States, produces a line of capital equipment for use in a variety of industries, especially for automobiles, trucks, farm equipment, and construction equipment. The company was founded over 70 years ago, with sales (turnover) growing slowly to about US$60 million by the end of World War II, and since then more rapidly to more than US$3 billion in the mid-1990s. After-tax profits have grown correspondingly, usually amounting to about 3
–
4% of turnover.

Capitool has been a leader in offering an advanced line of products. Heavy research and product development expenditures coupled with customer orientation have enabled the company to achieve a dominant position in the US market.