BUS 322 Lecture Notes - Lecture 10: Longrun, Transfer Pricing, Opportunity Cost

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 322
• Professor: Mahmoudian Fereshteh

Document Summary

Explain the purpose and role of transfer pricing. Explain how to use a general economic rule to set an optimal transfer price. Explain how to base a transfer price on market prices, costs, or negotiations. Discuss the implications of transfer pricing in a multinational company. The chapter discusses the effects of transfer pricing on segment reporting. A transfer price represents the amount charged when one division sells goods or services to another division within an organization. Transfer pricing is a challenge for cost managers because it represents an economic event that must be recorded in the accounting system. Deciding what the transfer price should be is the challenge. Transfer of goods and services within an organization do not impact the organization"s profits as a whole organization. However, the buying and selling divisions" profits are affected by transfer prices charged. A high transfer price increases profits for the selling division and increases costs for the buying division.