Transfer pricing can create problems if a company division can sell its output outside the company rather than transfer its output to another division within the company.

Question

Quizplus · Accepted Answer

If a division can sell its output outside the company, it may set a higher price for its goods than it would charge if it transferred the goods to another division within the company. This can create problems in determining the true cost of goods and affect the profitability of the company as a whole. Therefore, transfer pricing can become a significant issue in managing a multi-divisional company.

Transfer Pricing Can Create Problems If a Company Division Can