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Introduction
Transfer pricing is one of the key factors of a management control system, which helps a company to achieve its goals, including profit maximization and tax minimization.
There are several methods of setting transfer prices among profit centers within the same organization. Each profit center tries to set transfer prices which maximize their own profit. The buying and selling profit centers’ profits are largely affected by transfer prices. For example, when a high transfer price is charged, the selling division’s profits increase, while the buying division’s costs increase. So, transfer pricing should be established on a reasonable and objective basis, which should maximize the companywide profit, rather than being based on an individual division’s profit. The company can choose market-based transfer pricing, cost-based transfer pricing, or negotiated transfer pricing.
We will mainly focus on comparing market-based transfer pricing and cost-based transfer......

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Approximate Word Count: 2538
Approximate Pages: 11 (250 words per double-spaced page)

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