Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 13

Refer to the In Action item, “Transfer Pricing at Weyerhaeuser.” Why might they use market prices instead of costs for product transfers?

Step 1 of 2

Transfer pricing at the W.

The reason why market price instead of costs of product, is being used at the W. is because the company’s products, the wood and the paper has a very good demand in the market. This economic scenario gives both the divisions opportunity to sell/buy their products in the market at a price which is determined by the market. Hence any price which is not in sync with the market price will not be acceptable to any of the division for the obvious reason of negative impact on the profit numbers & the balance sheet.