- A transfer price is that notional value at which goods & services are to be transferred by the supply division to the receiving division. The goods that are produced by the buying division & sold to the outside world are known as final products.
- The department who supply the goods are called supply division & the department who receives the goods are called receiving division.
- Transfer price becomes Revenue for Supply Division. & transfer price become cost for the Revenue Division.
General Rule is that:-
TRANSFER PRICE:- VARIABLE COST + CONTRIBUTION LOST
- Goods & services which are the outputs of the 1 division, would be transferred to another division as inputs. It may be:-
1. From 1 factory to another under the same company or,
2. From 1 division to another division.