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Transfer Pricing:

Pricing


Transfer Pricing:

                Manufacturing is a complete process in which all the production activities are linkup with each other. Sometimes the prices which are settles with the quantity of the product  is covered all its production process efficiently but at the end of the product there are some financial funds are available to the managerial accountants. At that time they make decision to use to use the funds and improve the working efficiency of other departments through the available funds.

That’s the main reason they transfer the available materials and funds to other manufacturing segments or processes. That’s Transfer Pricing is happens in this situation when a production segments transfer its goods and services to another segment of the same organization.

There are three basic methods of the transfer pricing. Which are as follows:

·         Sometimes the organizations transfer their price at the full costing price with the some reasonable markup that is known as cost plus pricing.

·         In the second method the department use the open market selling price to transfer price to other segment. That is known as Market Pricing.


·         When departments independently decide a reasonable price after an agreement. That Transfer of price is known as Negotiated Pricing.

·         The minimum pricing is the price which a selling segment or department is accepting  for selling or transferring its opportunity cost, incremental cost to the other segment with in the same business organization.


·         The Opportunity cost of selling internally varies depending on two factors and that are the existence of an external market for the product or service, or otherwise the selling segment or department has excess capacity.



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