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Learning Objective $22-$C$1$: Explain transfer pricing and methods to set transfer prices.

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Divisions within a company sometimes do business with one another. The price used to record transfers of goods across divisions of the same company is called the transfer price. Transfer prices can be used in cost$,$ profit, and investment centers. Because these transfers are not with customers outside the company, the transfer price has no direct impact on company income. However, transfer prices can impact division income and, if set incorrectly, lead to bad decisions.