Suppose, A company has two divisions: Division A and Division B. Division A sells to Division B and to other outside customers. Division B buys from only Division A. The following unit costs wrere incurred by Division A for the coming year: Direct Materials = $10 Direct labor = $6 Variable manufacturing overhead = $3 Variable …
Transfer price is an important factor in evaluating divisional performance measurement mainly because of the desire of the selling and buying divisions of the same company to maximize their individual performance. A great deal of intra firm buying and selling occurs in decentralized firms which necessitates the setting of transfer prices. For example, a textile …
In an organization where there are a number of divisions or departments, the question of pricing of products from one division to another becomes important. For example, the price that one division should charge or be allowed to charge another for goods and services provided. Definition A Transfer-price is the internal price at which goods …