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Transfer Price

A transfer price is a mechanism which is used to measure the value of goods or services furnished by a profit centre to other responsibility centres within an organisation. A correct determination of transfer price is more essential because it affects the other centres of the organisation.

 

Following factors taken into consideration while determining transfer price

(i) The accurate measurement of divisional profitability.

(ii) To motivate the divisional managers.

(iii) To ensure that divisional autonomy and authority is preserved.