Transfer Price

AAA

DEFINITION of 'Transfer Price'

The price at which divisions of a company transact with each other. Transactions may include the trade of supplies or labor between departments. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities.

Also known as "transfer cost".

INVESTOPEDIA EXPLAINS 'Transfer Price'

In managerial accounting, when different divisions of a multi-entity company are in charge of their own profits, they are also responsible for their own "Return on Invested Capital". Therefore, when divisions are required to transact with each other, a transfer price is used to determine costs. Transfer prices tend not to differ much from the price in the market because one of the entities in such a transaction will lose out: they will either be buying for more than the prevailing market price or selling below the market price, and this will affect their performance.

RELATED TERMS
  1. Deal Slip

    A record of the essential details of a transaction entered into ...
  2. Expense

    1. The economic costs that a business incurs through its operations ...
  3. Managerial Accounting

    The process of identifying, measuring, analyzing, interpreting, ...
  4. Revenue

    The amount of money that a company actually receives during a ...
  5. Profit Center

    A branch or division of a company that is accounted for on a ...
  6. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating ...
Related Articles
  1. Investing Basics

    Reading The Balance Sheet

  2. Options & Futures

    Find Quality Investments With ROIC

  3. Options & Futures

    Advanced Financial Statement Analysis

  4. Fundamental Analysis

    Where do traders place orders when they ...

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center