A company can easily manipulate its cost accounts to alter the magnitude of the transfer price.
This loan was extended for the 2010 season after the clubs couldn't agree a transfer price.
I also showed how to arrive at a successful transfer price where there was no market for the intermediate product.
As goods are passed up to a division, the transfer price may include elements to cover profit and fixed costs.
As each transfer price embodies just the sum of variable costs so far, this method is good for decision making.
Look at Figure 3 again; the transfer price could be one that is set equal to the market price.
It is normal for a transfer price to be imposed and then to let the divisions get on with making their own decisions.
In such a case, the transfer price is deemed to be the reasonable amount determined on an arm's length basis.
Here a transfer price of £50 has been set so as to give each division some of the profit.
This article has looked at how a theoretical transfer price can be calculated in a simple situation.
