Transfer price is the cost of buying the product in the buying division and is the sales revenue for the selling division. The level of the transfer price will affect the profitability of both divisions and thus has performance appraisal implications. Transfer pricing occurs where an organizational structure itself into separate independent divisions. When separate divisions within the organization buy and sell to and from one another, then transfer pricing occurs
Transfer pricing is the setting of the price for goods and services sold between controlled or related legal entities within an enterprise. For example if the subsidiary company sells goods to the parent company the cost of those goods paid by the parent to the subsidiary is the transfer price.
A transfer price may be defined as price related to goods or other services transferred from one sub unit (process, department, member of the group etc) to another sub unit within the same organization.