Page 9 - Manac Costing Test 2 class slides - 4. Transfer Pricing

TRANSFER PRICING

Maximum Transfer Price

The maximum transfer price is the maximum that the
receiving/buying division can pay without making a loss.

Remember if an external market exists the maximum transfer

price can never be more than what the receiving division can
purchase it at externally (less any savings on transport

expenses).

No external market (the receiving division cannot purchase

externally:

Maximum transfer price =

Receiving divisions selling price

Less: Receiving divisions incremental costs (fixed and variable)

This will be the transfer price where the receiving division will

breakeven (no profit or loss).
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