The price that one division of a company charges another division for its products,which are the inputs the other division requires to manufacture its own products refers to:
A) vertical disintegration.
B) vertical integration .
C) transfer pricing.
D) related diversification.
E) none of these.

Question

Quizplus · Accepted Answer

Transfer pricing refers to the practice of setting prices for the transfer of goods or services between divisions within the same company. This is done to allocate costs and profits between different divisions and to ensure that each division is being charged a fair price for the inputs it requires to manufacture its own products. Vertical integration refers to a company's ownership of multiple stages of the supply chain, from raw materials to finished products, while vertical disintegration refers to the opposite - breaking up a company into separate independent units. Related diversification involves expanding a company into related businesses in order to benefit from synergies and economies of scope. None of these options accurately describe the practice of transfer pricing.

The Price That One Division of a Company Charges Another