Transfer pricing-performance evaluation, Managerial Accounting

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Transfer Pricing and Performance Evaluation

Transfer pricing is simple in concept and yet complex in implementation. It provides a divisional output valuation where output from one division becomes the input of another division within the same organization. This is often necessary to the operation of profit or investment centers. Complexity in implementation arises from the availability of a number of valuation bases, each with their own implications for the ways in which an organization is to be managed. This section provides a description of the major valuation bases found in practice and in theory. Transfer prices are necessary to the operation of performance measurement based on profit and investment centers and the topic includes a critical appraisal of performance measurement in general.

This is divided into three. The first section describes the purpose of transfer pricing. In the second section, methods of transfer pricing are described and briefly evaluated. In the final section, a critical appraisal of performance measurement in general and transfer pricing in particular is provided.


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