Large companies are often organised into profit centres (PCs). Typically, each PC has considerable operating autonomy and is permitted (and expected) to maximise its own profits. Often these PCs choose to trade with each other even where they are not obligated to do so. A question then arises as to what prices should apply to any transfers between PCs.
This
article considers the issues can should be considered when using opportunity cost as the basis for setting the transfer price between profit centres.