marginal-cost transfer prices

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*Transfer prices set by marginal cost pricing. When there is no market for the goods and services that are bought and sold between the divisions of an organization, the transfer price should be the marginal cost, which is normally assumed to be short-term variable cost. Setting transfer prices equal to marginal costs helps managers to identify the output levels that will maximize profits. There can be problems if managers do not have accurate cost information.

Subjects: Accounting.

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