Page 338 - PM Integrated Workbook 2018-19

Chapter 12

2.2 Setting the transfer price

Method 1: market based approach

If an external market exists for the transferred goods then the transfer
price should be set at the external market price.

Optimum TP = Market price +/– Any small adjustment

 Only one price in the market  If division’s product not identical

 No buying or selling costs to that offered by market there
may be additional or less costs
 Market can absorb all output of
primary division and meet  If division saves costs when
transferred internally (e.g. on
requirements of secondary division delivery or marketing)

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