Chapter 12   Transfer Prices

Learning Content Chapter 12 of ‘Business Economics VI Groundbreaking’: What can and cannot be said about the ‘transfer price’?
The tension between the whole and the parts of an organization.
An organization usually consists of different parts: divisions, sectors, departments. The organs of the organism. Not infrequently spread over various countries, or even continents. With somewhere as a central nervous system or beating heart, the head office, from where such a transnational organization (world concern) is led. Centralization (the head office decides) versus decentralization (the decision-making power is delegated to the components). Not everything has to be centrally controlled. Not everything can be decentralized. Think of a train, with the head office as the locomotive and the various departments as just as many coaches. The president is the driver of the train. Which decisions belong logically to the driver and where he / she can better not interfere? Sometimes central decision-making is most effective and most efficient too. It does not make sense to keep carriages consultation sessions on issues such as in what ‘direction’ the train should travel or at what ‘speed’. That offers no view. Alternatively, an express train is conceivable (the most excellent organization), with a motley collection of very different carriages behind the locomotive. So there is certainly room for policy and own culture separately in each department. The cohesion of the various departments within an organization takes shape in mutual deliveries. These are only then permanently justified, when prices apply: internal transfer prices.
The problem of setting the right transfer prices is one of the unsolved business economics issues. In other words, there is (as yet) no clear solution method in all cases. However, there are situations, and we have described a few in this book, where the setting of transfer prices is (for the most part) already solved. Upper and lower limits can be indicated between which is the value of something, and in this case the transfer price, probably is. Point values are not be given but this is also not necessary because in practice it is often possible to suffice with reasonably accurate and reliable value intervals. We recall Keynes’ epigram: “It is better to be approximately right than precisely wrong.”

This book harshly criticizes out-of-date Business Economics textbooks.

8 ‘Scientific Perfections’ and 1 of them is Period Profit Measurement, EXACTLY, QUICKLY and EASILY, these are fully explained in
‘Business Economics VI Groundbreaking’. Schools / Universities ignoring this book, they train students totally wrong in Business Economics.

A self-study book, hardly needing a teacher. Necessary also for many managers in companies to improve their own performance.
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