a) What is a transfer price?
b) How can firms use transfer prices strategically?
c) What role does GAAP play in how firms determine transfer prices?
A transfer price is the price at which parties related to each other buy and sell goods and services. This is an internal sale. For example, division A sells their products to division B, all within the same company. This is most often conducted in different countries, whereas division A is located in the U.S. and division B is located in China, Mexico, or some other country. When a company buys its own goods for other ...
This solution explains what transfer prices are and how firms can use transfer prices strategically. The role that GAAP plays in transfer price determination is also discussed.