You are the general manager of the machining products division of a diversified manufacturing company in Des Moines, Iowa. You primarily produce machining products for sale to wholesalers around the world. However, you periodically get requests from other divisions in your company to purchase your products. You treat these purchase requests the same as a purchase request from a non-affiliated entity. You sell your machining products to other internal divisions at a price that is equivalent to a market-based cost.
This is an example of which of the following types of business pricing?
A) Freight absorption pricing
B) Uniform geographic pricing
C) Transfer pricing
D) Zone pricing
E) Base-point pricing

Question

Quizplus · Accepted Answer

This scenario describes transfer pricing, which involves the sale of goods or services between different departments or divisions of the same company. The price charged for these internal transactions is typically based on market-based cost, as in this case. Freight absorption pricing involves absorbing transportation costs into the price of a product, while uniform geographic pricing uses the same price for all customers in a specific region. Zone pricing and base-point pricing are also geographic pricing strategies.

You Are the General Manager of the Machining Products Division