Lecture 7- Transfer pricing

Transfer pricing- Amount when one business sells goods or services to another business (effectively selling prices). It is key accounting method that is important for measuring within organisations

One purpose of transfer pricing system is to provide information that divisional managers to make good . This will occur when that divisional managers take to reported profit of their also improves profit of as whole

Another purpose of transfer pricing system is to provide information that is for evaluating & performance of

Third purpose of transfer pricing system is to ensure that is not undermined

Fourth purpose of transfer pricing system is to intentionally move between divisions or locations for shifting to divisions located in countries

Minimum transfer price =

Outlay cost- Costs incurred by unit to & goods or services to be

Opportunity cost- Profit by unit to & product for transfer

One transfer pricing method is transfer prices. In determining this, management may choose to use of product or service listed. If there are competitive external for product, then are generally recommended transfer price

Another transfer pricing method is transfer prices. Two cases for adopting this are: when goods do not have external & when supplying unit has

Third transfer pricing method is transfer prices. In determining this, of company are free to transfer price between & then to decide whether to & internally or deal with outside parties. Managers price at which transfers will be made

Fourth transfer pricing method is transfer prices

Fifth transfer pricing method is transfer prices

Advantage of using market-based transfer prices is that leads to calculation of ‘’ divisional that can be to benchmarks

Disadvantage of using market-based transfer prices is that it will not always encourage behaviour

Advantage of using negotiated transfer prices is that there is full of & divisions

Disadvantage of using negotiated transfer prices is that there can be & between of divisions involved

When there is perfectly competitive market for intermediate product correct transfer price is price

Cost-plus transfer prices will not result in output being

In decentralised organisation, managers of & usually have considerable over setting & accepting transfer prices. Direct intervention by is usually considered to be inconsistent with of decentralisation