Negotiated transfer prices

In this lesson

1. 0:00 Negotiated transfer prices explained
2. 0:33 Factors influencing transfer price negotiations
3. 1:53 Internal cost savings and performance targets
4. 2:43 Imposed transfer pricing and autonomy issues

About this lesson

Transfer pricing is a key topic in Performance Management, and understanding negotiation dynamics will help you tackle case study questions where divisional autonomy and profit motivation are at stake. The video explores the rationale behind allowing divisional managers to negotiate transfer prices—it mirrors real business negotiations with external customers and suppliers. You'll discover the main factors that shape these negotiations: external market prices (what divisions could buy or sell outside the business), internal production costs, cost savings from internal transfers, performance targets and bonuses, and even interpersonal dynamics between managers. You'll also learn what happens when negotiations break down. If divisions can't agree, head office may impose a transfer price, but this removes managerial autonomy and can damage motivation—a critical trade-off to understand for exam questions. The lesson emphasises that there's no one-size-fits-all solution; different businesses manage this tension differently depending on their structure and culture.

Duration: 3m