Transfer Price

The price at which divisions of a company transact with each other. Transactions may include the trade of supplies or labor between departments. Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities.

Also known as "transfer cost".

Investopedia Says:
In managerial accounting, when different divisions of a multi-entity company are in charge of their own profits, they are also responsible for their own "Return on Invested Capital". Therefore, when divisions are required to transact with each other, a transfer price is used to determine costs. Transfer prices tend not to differ much from the price in the market because one of the entities in such a transaction will lose out: they will either be buying for more than the prevailing market price or selling below the market price, and this will affect their performance.

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Price charged by individual entities in a multi-entity corporation on transactions among themselves; also termed transfer cost. This concept is used where each entity is managed as a Profit Center-that is, held responsible for its own Return on Invested Capital-and must therefore deal with the other internal parts of the corporation on an arm's-length (or market) basis. See also Arm's Length Transaction.