TRANSFER PRICING

TRANSFER PRICE
•Is the charged when one segment
of a company provides goods or
services to another segment of the
same company
•Is an accounting practice refers to
the setting of prices of goods and
services.
Three common approaches are used to
set transfer prices

• Allow the managers involved in the

transfer to negotiate the transfer
price
• Set transfer prices at cost using either
variable cost
• Set transfer prices at the market price
NEGOTIATED TRANSFER PRICE

Result from the discussions

between the selling and buying
divisions
Negotiated Transfer Price predict (2)
things:

• Selling Division – will agree to the transfer

only if its process increase as a result of a
transfer
• Buying Division- will agree to the transfer
only if its process increase as a result of a
transfer
Selling Division’s Lowest Acceptable
Transfer Price
Buying Division’s Highest Acceptable
Transfer Price
Example:

• Sangalang Kwek2:
Kwek2 production capacity per month……10,000 pcs
Variable Cost per pcs of kwek2……………….Php 3.00
Fixed Cost per month…………………………….Php 20,000.00
Selling Price of Sangalang Kwek2 on
on the outside market……………………Php 10.00
• Quiboloy Food Haus
Purchase price of regular brand of Kwek2…Php 8.00
Monthly consumption of kwek2…………………2,000pcs
Transfer at market price

The market price approach is designed

for a situations in which there is an
outside market for the transferred
product or service; the product or service
is sold in its present form to outside
customers.
DIVISIONAL AUTONOMY AND
SUBOPTIMAZATION

The principles of decentralization

suggest that companies should grant
managers autonomy to set transfer
prices and to decide whether to sell
internally or externally
INTERNATIONAL ASPECTS OF
TRANSFER PRICING
• The objectives of transfer pricing
when a multinational corporations is
involved and the goods and services
being transferred cross international
borders