Dynamic Exhibit

Transfer Pricing Concept When divisions within a company transfer products or provide services to each other, a transfer price is used to charge for the products or services. Transfer prices should be set so that the overall company income is increased when goods are transferred between divisions. One approach to transfer pricing is the negotiated price approach, which allows the managers to agree (negotiate) among themselves on a transfer price. For a negotiated price to increase overall company income, the transfer price must be less than the market price, and greater than the supplying division's variable costs per unit. Learning Expectation Illustrate the effects of transfer pricing using the negotiated price approach. Caicusao Use the Dynamic Exhibit to answer the following qustions. 1. True or False: In every scenario the company benefits from using the excess capacity. a. True b. False 2. The Eastern Division would benefit in any scenario except when the transfer price is $ 3. The Western Division would benefit in any scenario except when the transfer price is $ 4. Each division's income increases by $100,000 when the transfer price is s Transfer Pricing Concept When divisions within a company transfer products or provide services to each other, a transfer price is used to charge for the products or services. Transfer prices should be set so that the overall company income is increased when goods are transferred between divisions. One approach to transfer pricing is the negotiated price approach, which allows the managers to agree (negotiate) among themselves on a transfer price. For a negotiated price to increase overall company income, the transfer price must be less than the market price, and greater than the supplying division's variable costs per unit. Learning Expectation Illustrate the effects of transfer pricing using the negotiated price approach. Caicusao Use the Dynamic Exhibit to answer the following qustions. 1. True or False: In every scenario the company benefits from using the excess capacity. a. True b. False 2. The Eastern Division would benefit in any scenario except when the transfer price is $ 3. The Western Division would benefit in any scenario except when the transfer price is $ 4. Each division's income increases by $100,000 when the transfer price is s