An effective transfer pricing system in the context of a divisional organization has to satisfy several basic criteria. The challenge is presently no transfer pricing system has been perfect. However, for an effective system of transfer pricing, some of the basic criteria need to be satisfied:

it should encourage divisional managers to actin the best […]

Sometimes, when a company has spare production capacity, it is willing to fulfill SPECIAL ORDERS for non-regular customers. Normally, the prices quoted are lower than those regular customers.

So when do a Company Accept or Reject a Special Order?

Generally, the rule is to accept the order as long as the incremental revenue is MORE […]

At times, management needs to decide whether to manufacture the product or to buy the ready made from other companies.

The following are some reasons to buy from other companies:

Flexibility to meet urgent demand of customers;
Overcome limiting factor problem ( Part 3);
Concentrate […]

As a result of limited supply of resources constraint, a company normally cannot produces as many products as it wish.
The limited supply of resources can be in many forms like limited cash, labor time, material/machine availability and others.
In line with the limited resources, the production manager therefore needs to plan the production mix in order […]

The following are some other cost techniques which are useful to management’s decision making:

Opportunity Cost

Represents the opportunities which have been forgone by following one course of action rather than an alternative course.
The opportunity cost in this case is the […]