Page 12 - Manac Costing Test 2 class slides - 4. Transfer Pricing

TRANSFER PRICING

Challenges With Transfer Prices

• The selling division may refuse to supply due to the

following:

• The price offered not being able to cover marginal cost (where
marginal cost pricing is used).

• The price offered not being able to cover full costs (where full cost

pricing is used).
• The price offered not being able to give the supplying division

optimum profitability (where market related prices are used and
divisional performance is judged on profitability).

• Failure to agree a negotiated price.

• The buying division may refuse to take supply due to the

following:

• The price charged is considered excessive, or more than the market

• In cost-based approaches this may be due to disputes relating to the

supplying division’s cost structure or the size of the mark-up.

• In market-based approaches there may be disputes as to the quantum
of the discounts for cost savings related to internal transfers.

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