Transfer prices, or intracompany charges for goods or services bought and sold between segments of a decentralized company, are

• typically cost based, market based, or negotiated; a dual pricing system can also be used to assign different transfer prices to the selling and buying units.

• set using the lowest market price at which the product/service can be acquired externally for the upper limit and using the incremental cost of production or performance plus the opportunity cost of the facilities used as the lower limit.

• used in organizations to enhance goal congruence.

>- make performance evaluations among seg¬ ments more comparable.

>- change a cost center into a pseudo-profit center.

>■ ensure optimal resource allocations.

»- promote responsibility center autonomy.

^ encourage motivation and communication among responsibility center managers. LO.1