Recommendations:1. Domestic Transfer PricingDomestic transfers of Xerox utilized a full standard cost price method while foreigntransfers used an arm’s length market price method. From the case, we do not knowhow the sourcing decisions are made. Even so, setting the transfer price using thecompetitive market price is still better than setting the transfer price using cost-basedtransfer prices. If Xerox can use the market price for their foreign transfers, werecommend they use it for domestic transfers as well. Using the market price as their domestic transfer price can help Xerox better respond to a competitive pricing threat.In addition it does not require the corporate controller to step in to arbitrate transfer price disputes.