ECONOMICS

Detailed explanation-1: -The general economic transfer price rule is that the minimum must be greater than or equal to the marginal cost of the selling division. In economics and business management, a marginal cost is equal to the total new expense incurred from the creation of one additional unit.

Detailed explanation-2: -When there is excess capacity the goods should be transferred for no less than the variable costs to produce them. The buying division (transferee) must decide the most they are willing to pay to buy internally, this is called the maximum transfer price.

Detailed explanation-3: -A transfer price is based on market prices in charging another division, subsidiary, or holding company for services rendered. Companies use transfer pricing to reduce the overall tax burden of the parent company.

Detailed explanation-4: -Transfer pricing refers to methods which determine the price for trading in goods or services between related enterprises or companies. Transfer pricing enables improvements in pricing, brings in efficiency, and helps simplification of the process of accounting.