the value or amount recorded in a firm's accounting records when one business unit sells (transfers) a good or service to another business unit.
Optimaltransfer price
the price that leads both division managers, each acting in their own self-interest, to make decisions that are in the firm's best interest.
If an intermediate market exists, the optimal transfer price is the market price.
If no intermediate market exists, the optimal transfer price is the outlay cost for producing the goods.
Marketprice-based transfer pricing
transfer pricing policy that sets the transfer price at the market price or at a small discount from the market price.
Cost-plus transfer pricing
transfer pricing policy based on a measure of cost (full or variable costing, actual or standard cost) plus an allowance for profit.
Cost-based policy
Transfer at the differential outlay cost (vc) to the selling division plus the forgone contribution to the company of making the internal transfers (sp-vc if the seller is operating at capacity, 0 if seller has idle capacity.)
Dualtransfer pricing
transfer pricing system that charges the buying division with costs only and credits the selling division with costs plus some profit allowance.
Negotiated transfer pricing
system that arrives at the transfer prices through negotiation between managers of buying and selling divisions.
