Transfer Prices
The divisions were expected to deal with one another as though they were independent companies. Parts were to be transferred at prices arrived at by negotiation between the divisions. These prices generally ware based on the actual prices paid to outside suppliers for the same or comparable parts. These outside prices were adjusted to reflect differences in design of the outside part from that of the inside part. Also, if the outside price was based on purchases made at an earlier date, it was adjusted for changes in the general price level since that date. In general, the divisions established prices by negotiation among themselves, but if the divisions could not agree on a price,
they could submit the dispute to the finance staff for arbitration.