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Importance of Transfer Pricing and Performance Measures.

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Comment on the importance of transfer pricing and performance measures.

How do they relate? And why are they important in the business environment?

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Solution Preview

This is a hot topic for individual profit centers and investment centers within a firm but often has no impact on the consolidated performance of the total firm. This is because transfer prices are the prices that units within a firm set to sell to each other. So, the sales price in one division is the same as the cost to another division. Any profit made in Step 1 because higher cost in Step 2 and so the ...

Solution Summary

Your tutorial is 256 words and explains why transfer prices make performance evaluation difficult. An example is given.