Dual rate pricing is a transfer pricing method in which the internal selling and the purchasing departments each record the transaction at different prices. For the seller (the supplying subunit), the price will probably be the market price. That is an advantageous transfer price for the selling department because it is equal to the market price the seller would receive from selling its product to an outside customer. Sales at the market price are all subject to the discipline of market prices; internal transfer transactions made at the market price to the internal buyer are no different from sales made at the market price to an external buyer.
Goal congruence is defined as "aligning the goals of two or more groups." As used in this question, it means the goals of the individual managers are aligned with those of the other and with the goals of the organization as a whole. In other words, the managers, while each acting in their own best interests, will also be acting in the best interest of each other and of the organization as a whole. With respect to transfer pricing, it is in the best interest of the organization that the products or services be bought and sold internally rather than from outside. The cost to the organization as a whole will be lower because it will not include a profit paid to the outside firm over and above its costs. The organization can essentially get the goods or services at cost. Thus, anything that encourages the organization's divisions to buy from one another instead of from outside will be good for the firm. A dual rate transfer price provides both the buying and the selling division with an advantageous price. The selling division receives the market price for the sale, while the buying division gets a purchase price that is lower than it would be if it were to purchase outside. Thus, use of a dual rate transfer price promotes goal congruence between the two managers and also between the two managers and the organization as a whole.
Dual rate pricing is a transfer pricing method in which the internal selling and the purchasing departments each record the transaction at different prices. There is nothing in this arrangement that would provide an incentive for the supplying subunit (the seller) to control costs, because the transfer price on the seller's side will probably be the market price the company would charge an outside customer.
A dual pricing arrangement does not simplify tax calculations when the buying and supplying subunits are taxed in different jurisdictions.
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