Topic Progress:

This video discusses dual rate transfer pricing.

Most companies use a market-based, cost-based, or negotiated transfer price to coordinate transfers between internal divisions. However, some companies use a dual rate transfer pricing system. With a dual rate system, the selling division receives one price whereas the buying division is charged a different price. For example, the buying division might be charged the variable cost of production whereas the selling division recognizes revenue for the full cost. The goal is to avoid disputes between the divisions regarding the transfer price.