Transfer pricing is the practice of setting immanent prices within a company at which goods and services rump be bought and sold between different divisions. Â There atomic number 18 four different surfacees of setting transfer prices. (Atrill and McLaney 2009 pp 386-396). Â They are found on:
Market prices
Negotiated prices
Variable cost
Full cost
The Market Prices approach involves determining the price of  the product or service in the international market and adopting that as the internal selling price.  This is an elevated approach because the selling division can charge the buying division the opportunity cost of selling to the market. This approach, however, may, at times, be impractical as there may not be an out-of-door market price or the existing external price may be uneconomical as a transfer price.
For example, in instances when the internal buying division has the survival of the fittest to buy from the open market, the selling division may be forced to set the transfer price at little than the full market price in order to call for the internal sale especially if the selling division is operate at full capacity and unable to achieve its bud quartered sales.
The Negotiated Prices approach sets a transfer price that is negotiated between the selling and the buying divisions. Negotiations would be facilitated if division managers are able to use an external market price as the benchmark price. If not, disputes between divisions may arise. Â Disputes should be avoided as they risk diverting senior perplexity focus from strategic issues in order to mediate between divisions.
Variable Cost approach is the setting of the transfer price based on the variable cost of the product or service. This approach is beneficial to the selling division that is producing...If you want to get a full essay, order it on our website: Ordercustompaper.com
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