A large automobile dealership is installing a responsibility accounting system and three profit centres: parts and service; new vehicles; and used vehicles. The department managers have been told to run their shop as if they were in business themselves. However, there are interdepartmental dealings. For example: 

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

2. The used-car department’s major source of inventory has been cars traded in as partial 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.