Transfer Pricing

Transfer price is the price which one unit of an organization charges for a product or service supplied to another sub-unit of the same organization. Objectives of Transfer Pricing System: To foster a commercial attitude in those executives who are responsible for the performance of profit centres. The main emphasis here is on profitability .This objective compels the units to improve their profit position. To optimise the profit of the concern over a short period of time. To optimise the allocation of concerns financial resources

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METHODS OF TRANSFER PRICING

a) b) c) d) Pricing At Cost: Actual Manufacturing Cost Standard Cost Full Cost Full Cost mark Up Pricing at Market Price: Under this method ,the transfer prices of Goods/services transferred to other units/divisions are based on market prices . Bargained or Negotiated Prices:

Conflict Between A division and the Company

A conflict between a division of the company and the company as a whole is faced by the management of decentralised units when products or services are exchanged among different divisions of the company. The management of such companies also expects that each division should not only achieve its own objective necessary for evaluating the performance but should also achieve the objective of goal congruence