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Simple English definitions for legal terms
transfer price
Read a random definition: contingent claim
A quick definition of transfer price:
Transfer price: The price at which goods or services are sold between different departments or divisions within the same company. It is like buying something from your sibling or friend, but instead of money, it is a price that is agreed upon. This helps the company keep track of its profits and costs, and ensures that each department is fairly compensated for their contributions.
A more thorough explanation:
Definition: Transfer price refers to the price at which goods or services are transferred between different departments or divisions of the same company. It is the price that one department charges another department for goods or services provided.
Example: Let's say that a company has two divisions: Division A and Division B. Division A produces a product that Division B needs to complete its own product. In this case, Division A will charge Division B a transfer price for the product it provides. The transfer price will be the cost of producing the product plus a markup that reflects the profit margin that Division A wants to earn.
Another example could be a company that has a manufacturing division and a sales division. The manufacturing division produces a product and sells it to the sales division, which then sells it to customers. The transfer price in this case would be the price that the manufacturing division charges the sales division for the product.
These examples illustrate how transfer pricing works within a company. It is important for companies to set transfer prices that are fair and reasonable, as transfer pricing can affect the profitability of different divisions within the company.