When a transfer price is set by the management of a parent company rather than by the subsidiary managers, what kind of transfer price is being used?

Question

Quizplus · Accepted Answer

A discretionary transfer price is set by the management of the parent company based on their own judgments and decisions rather than using any market or cost-based methodology. This can lead to potential conflicts between the parent company and the subsidiary, as the latter may feel the transfer price is unfair or unrealistic.

When a Transfer Price Is Set by the Management of a Parent