Transfer pricing does not affect divisional profits.

Question

Quizplus · Accepted Answer

Transfer pricing is the process of pricing goods or services when they are transferred between different divisions or subsidiaries within a company. The transfer price can affect the profits of each division because it determines the cost of goods sold and the revenue earned by each division. If transfer pricing is set too high, the purchasing division will incur higher costs, which will reduce its profits. Conversely, if transfer pricing is set too low, the selling division will earn less revenue, which will also reduce its profits. Therefore, transfer pricing can have a significant impact on divisional profits.

Transfer Pricing Does Not Affect Divisional Profits