Speaking of transfer pricing, this is a term that is commonly used by experts to refer to the price at which goods or even services are transferred from one department or process to another or from one group member to another. And also, we want you to know that transfer pricing has something to do with the price that is being charged by divisions of an organization to other divisions for all the goods or services they are providing them with.
The next thing about transfer pricing that we want you to know of is the fact that it has its own sets of problem to deal with, similar to other process and what these processes have in common as well is that they possess solutions that can solve them in an effective manner. If you are wondering why we are telling you these things, well, that is because we want you to know about the things that are happening in the said process and also, this is a way for you to better understand their corresponding solutions.
Divisional autonomy is considered as one of the problems that one may face with transfer pricing. According to experts, transfer prices are good for profit jobs centers because if a particular center does work well with another profit center, the size of the transfer process will greatly influence the costs of one profit center as well as the revenue of another. However, there is a high chance that the decisions being taken by profit center managers are not for the best of interest for other profit centers or even for the whole organization, but only for the best interest of his own part of the business.
Aside from the problem we cited above, there are more that we want you to know of like divisional performance measurement. Most of the time, there are profit center managers out there who have the tendency of placing their own profit performance above everything else. And since the performance of these profit centers is measured in accordance with the profit they earn, there is no one who would want to do work for other profit centers without getting paid for it. Know more about finance at https://www.dictionary.com/browse/finance.
We cited not too long ago about how these problems come with the best possible solution and that is what we will be discussing below. If anything, when setting transfer prices, it should be at a level where these problems will be overcome. It is vital and essential for transfer prices to be able to provide a selling price that is artificial as this way, transferring divisions will be able to earn a return of its efforts. Moreover, the receiving division will be able to incur a cost for the benefits they receive. The next solution that we have here in our list has something to do with transfer prices being set at a level in which, profit center like CrossBorder Solutions performances are allowed to be measured commercially. What we are trying to say here is that transfer prices must be a suitable commercial price.