TRANSFER RATES NEGOTIATIONS

Transfer price negotiations (negotiated transfer price) is the transfer price agreed between sales division with the purchase.
Transfer price negotiation has several advantages such as:
This approach to protect the autonomy and the division consistent with the spirit of decentralization.manager devision tend to have better information about the potential costs and benefits of the transfer of the other parties in the company.
In general, can not be sure that the transfer price will they agree. However, it can be estimated exactly two things:
Division sales transvering will agree to return only if the division sales increased due to the transfer.
Division will agree to purchase the transfer only if the profit division purchases also increased due to the transfer.
This may appear obvious, but this is a very important.
Clearly, if the transfer price under division sales, and losses appear will sales division agreed to reject the transfer. Similarly, if the transfer price is set too high, it will not be possible for the purchase of a division to get the profit from the transfer of goods. Actual transfer price approved by two managers devisi can be located between the two limits.
Determine this limit include:
Price range that can receive transfer (range of acceptable transfer price)
Price range in which the transfer of profits from the second division of the accounts involved increases.

Lowest transfer price that can be receive Division Sales namely short, if the transfer has no impact on the cost-fixed cost, then from the point of view of division sales price of the transfer must cover the variable costs in the units in which each transfer and the opportunity cost of sales missing.

The formula that is:
saling perspective:
≥ transfer price per unit variable cost + = (Total contribution margin up the lost sales) / █
(Number of units to be transferred @)

Perspective buyers:
≤ cost transfer price of purchase from suppliers outside

Or, if there is no outside suppliers:
≤ Profit transfer price that will not be accepted per unuit sold
(not including transfer pricing)