ECONOMICS

Detailed explanation-1: -The maximum price that the buying division will want to pay is the market price for the product – ie whatever they would have to pay an external supplier.

Detailed explanation-2: -The buying division (transferee) must decide the most they are willing to pay to buy internally, this is called the maximum transfer price. The maximum transfer price is the lowest market price that they could buy the products for from an external supplier.

Detailed explanation-3: -The market-based transfer price is the market price of an item in an uncontrolled market. Market-based transfer prices are used when there are no comparable market transactions involving the transfer of ownership for goods or services, which means that specific identification cannot be applied.

Detailed explanation-4: -Transfer prices will usually be equal to or lower than market prices which will result in cost savings for the entity buying the product or service.