Transfer Pricing in an Automobile Dealership A large automobile dealership is installing a responsibility-accounting system and three profit centers: parts and service; new vehicles; and used vehicles. Each department manager has been told to run his shop as if he were in business for himself. However, there are interdepartmental dealings. For example:

a. The parts and service department prepares new cars for final delivery and repairs used cars prior to resale.

b. The used-car department’s major source of inventory has been cars traded in as part payment for new cars.

The owner of the dealership has asked you to draft a company policy statement on transfer pricing, together with specific rules to be applied to the examples cited. He has told you that clarity is of paramount importance because your statement will be relied upon for settling transfer-pricing disputes. lop1