AC202 Week 5 Discussion

AC202 Week 5 Discussion - performance evaluations of the...

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Week 5 Discussion Chap. 21; Question #17 17. What is a transfer price? Under what conditions is a market-based price transfer price most likely to be used? A transfer price is the basically a transfer or transaction of goods between different divisions within the same company. For instance, the book gives an example of "a separate division of Harley-Davidson manufactures its plastic and fiberglass parts used in the company's motorcycles." (Pg 875) Since the transaction usually involves something or multitudes of things that are manufactured by the company, but needed in the overall finished product, there has to be a record of it and its price. This price is the transfer price. The transfer price has no direct impact on the company's overall profits as it is not used outside the company. The transfer price can however, affect
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Unformatted text preview: performance evaluations of the division and lead to bad decisions if set incorrectly. If a market-based transfer price is going to be used, it will most likely be under the conditions that the particular division has no excess capacity of the part being transferred. This means that if they have no excess, and can in fact sell all of the units to an outside source at a certain price, then the company must charge the other divisions that need the item the same price as they would charge for them outside the company. Otherwise, if they charge a lesser amount for the unit than what they can sell it for outside the company, then that division will incur an unnecessary opportunity cost and it will lower the division's income and hurt it on its performance evaluation....
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This note was uploaded on 11/11/2011 for the course AC 202 taught by Professor Nancyeverett during the Spring '09 term at Park.

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