Transfer prices may be used to achieve entirely independent aims depending on the various views needed for your organization. For example, the central controlling department of the group might have aims and information requirements that differ completely from those of the controlling departments for the individual divisions or companies.
These aims may sometimes even conflict with one another:
- Transfer prices are often used to represent profits optimally in annual reports for tax or other external reporting reasons.
- The managers of individual divisions (or profit centers) are interested in determining profits and profit margins of their own areas of responsibility and coordinating their activities accordingly.
- Strategic decisions for the whole group are often made based on the assumption that the group acts as a single company. Since the transfers between member companies include internal profits, these need to be eliminated in order to provide a sound basis for decisions for the group as a whole and valuate business transactions using corporate-wide costs of goods manufactured.