[Verse 1] When divisions trade between themselves today Transfer pricing shows the internal way Cost-based methods start with what we spend Add a markup where the profits blend Full cost takes every dollar that we use Direct materials and overhead we choose Variable cost just covers what will change While standard cost keeps budgets in our range [Chorus] Cost-plus, negotiate, find the price that's right Between the subsidiaries trading through the night Cost-plus gives you structure, negotiation's free Choose the method wisely for efficiency [Verse 2] Cost-plus pricing has its strengths we know Objective data makes the numbers flow Easy calculation, arms-length defense But inefficient units bear no consequence When the buying division has no choice to make Cost-plus methods are the route we take Specialized products or capacity constrained This structured approach keeps transfers maintained [Chorus] Cost-plus, negotiate, find the price that's right Between the subsidiaries trading through the night Cost-plus gives you structure, negotiation's free Choose the method wisely for efficiency [Bridge] Negotiated prices bring flexibility Market forces drive profitability When external markets exist for trade Both divisions' interests can be weighed Goal congruence matters most of all Transfer prices shouldn't make performance fall Motivation, fairness, autonomy preserved The right method gets results deserved [Verse 3] Negotiation works when power's balanced well Both divisions have alternatives to sell External markets provide the benchmark price Internal trading doesn't sacrifice But disputes can slow the process down When managers can't find common ground Arbitration or dual pricing schemes Help resolve the conflicts in between [Chorus] Cost-plus, negotiate, find the price that's right Between the subsidiaries trading through the night Cost-plus gives you structure, negotiation's free Choose the method wisely for efficiency [Outro] Transfer pricing strategy depends upon the scene Cost-based structure or negotiated means Both approaches serve their purpose true Pick the method that works best for you
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