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Various Approaches for Setting Transfer Prices

I need to describe and evaluate the various approaches for setting transfer prices.

How can the use of different approaches between the selling and buying divisions be reconciled? It should be with a proper referencing as well. Thanks.

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Approaches of Transfer Prices

Answer 1.
Transfer Pricing
Transfer price refers to the settlement of the value of product in terms of money that is charged by the manufacturer or the company with its associated product (Warren, Reeve & Duchac, 2008). Transfer price affects the organization's financial performance. In the organization, three types of transfer pricing are used to fix the value of products. These types can be discussed as follow:

Market Price Approach: Market price approach is used by the firm in the situation of external customers for selling the product. In this approach, products are charged according to the market of different countries (Warren, Reeve & Duchac, 2008). In the global era of high competition, market price approach is a useful approach to sell the operating product with full capacity of the organization. With the help of this approach, the organization can earn high rate of profit by assessing actual market condition as well as market price of that product. Through using this approach, the ...

Solution Summary

Various approaches for setting transfer prices are examined.