It refers to the divisional income determination for deriving the appropriate price at which goods and services should be transferred from one organizational segment to another. The transfer price represents a sales price to the selling segment and a cost price to the buying segment. The transfer price, therefore, significantly affects reported profits of both segments and divisions. Transfer prices needed for financial reporting purposes may differ from those required for internal decision and management purposes. A particular transfer price base may be excellent for internal performance measurement purposes, for motivating divisional managers, for instituting and maintaining cost control programs, for achieving full utilization of excess capacity, or for the proper allocation of firm resources. However, this same base may be inappropriate for external reporting purposes.