12-13 A transfer price is the price charged for
a transfer of goods or services between seg-
segment margin because the common cost
ments of the same organization, such as two
would remain. The common cost that had been
departments or divisions. Transfer prices are
allocated to the segment would then be reallo-
needed for performance evaluation purposes.
cated to the remaining segments—making them
appear less profitable.
The selling unit gets credit for the transfer price
and the buying unit must deduct the transfer
price as an expense.
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