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Transfer pricing

3.2 Scenario 2: the selling division has surplus capacity
Objectives

Transfer price
negotiated

between

Minimum price selling Maximum price
division will accept buying division will
pay, lower of

External purchase Net marginal revenue
price of transferred i.e. selling price less
products marginal cost of buying
division’s final product

Illustrations and further practice

Now try example 2 from Chapter 9.

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