Transfer Pricing

Question 1

what is transfer pricing ?

Answer 1

when goods are transferred from one profit centre to another. An internal price (transfer price) is assigned

Question 2

what are the motivations of transfer pricing?

Answer 2

1. strategically move profits between divisions
2. provide information that motivates divisional managers to make good economic decisions
3. information useful for evaluating managerial and economic performance of divisions
4. ensure divisional autonomy is not undermined in the decentralised organisation