What is the term for the pricing mechanism that allows companies to establish prices for transactions within the same corporate group?

The correct term for the pricing mechanism that allows companies to set prices for transactions between different parts of the same corporate group is transfer pricing. This concept is essential in corporate finance and accounting, particularly for multinational corporations. Transfer pricing refers to the prices at which goods, services, or intellectual property are transferred between entities within the same organization.

By establishing transfer prices, a company can effectively manage its internal financial reporting, tax obligations, and profit allocation across various jurisdictions. This practice can also influence the financial performance of subsidiaries and is especially important for compliance with tax regulations while ensuring that profits are reported fairly.

In contrast, cost behavior pertains to how costs change with changes in activity levels, variance analysis involves comparing actual financial performance against budgeted figures to identify discrepancies, and a cash budget is a financial plan that outlines expected cash inflow and outflow over a specific period. These concepts serve different functions in accounting and finance and do not specifically address the pricing of internal transactions, which is the focus of transfer pricing.