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Transfer pricing

 Cost-plus pricing, where the transfer price is the marginal cost or a full cost plus
a mark-up. A pre-determined standard cost should be used, rather than actual
cost.

 Dual pricing, in which each division records the transfer price at a different
amount to encourage optimal decision making:

– The supplying division records revenue at market price, or total cost plus

– The receiving division records purchases at the supplying division’s
standard variable cost only.

Illustrations and further practice

Now read the ‘Fern Group’ illustration and do example 3 ‘Pool Group’ from
Chapter 9.

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