Transfer pricing

In this lesson

1. 0:00 Introduction to transfer pricing
2. 0:22 Definition and purpose of transfer prices
3. 1:07 Key requirements and objectives
4. 2:02 Goal congruence versus divisional autonomy
5. 3:22 Setting transfer prices for group profit
6. 4:12 Assumptions and decision-making framework
7. 5:02 Managing internal capacity and resources

About this lesson

Transfer pricing is the price at which one division sells goods or services to another, and it's crucial for recording transactions accurately and evaluating divisional performance fairly. You'll explore the key objectives behind transfer pricing: achieving goal congruence so all divisions work towards the group's overall profit, granting divisional autonomy to managers, and ensuring fair performance evaluation with no clear winners or losers. The lesson explains why these objectives sometimes conflict and how to prioritise goal congruence when tensions arise. The video walks you through the core principles and assumptions that underpin transfer pricing decisions. You'll understand how selling divisions aim to maximise their selling price whilst buying divisions seek to minimise costs, and how to balance this with the organisation's best interests. This is essential knowledge for APM exam success and for managing divisional structures effectively in practice.

Duration: 5m