What is this “transfer price”, its guidelines, and its main objective?
The transferta cenas the singular imposed price for one subunit or division, of the institute to charge for specified products or services that have been supplied to the additional segments from the same institute. In addition to that, this type of business procedure enables faster determination of the price rates of which the products and services are handed-over from a profit center to one more, however, they are still partitions of the same company.
There are 5 main objectives in the method of pricing transfers, and these are:
• Goal analogy or congruence, which means, the prices has to be set to achieve the maximum divisional earnings. In addition to that, it is also for the purpose of it to be consistent as well with the entirety of the company’s objective.
• Performance assessment, as the prices need to be reliable when it comes to assessments when it comes to the divisional performance evaluation. The decision-making must be guided accordingly. Appraisement of the managerial performance, as well as, the division has to go through overall contribution costing. Lastly theworth valuation, this is for the divisional companies as its form of economic unit.
• Divisional self-sufficiency, as the profits that are made from a certain division should not solely be dependent upon the actions taken from other company partitions.
• Easy and simple, information has to be relevant.