  A number of approaches to solving the well-known transfer pricing problem are
known. However, few models satisfactorily resolve the core problem of allowing
both the source and receiving divisions to earn a profit on transfers during a
period in such a way that sub-optimal output levels are avoided. In 1969,
Samuel proposed to use a transfer price schedule instead of just a single
transfer price. An essential improvement of Samuels' model was given by Tomkins
(1990) in his pragmatic-analytical transfer pricing approach, which is a
combination of a single cost-plus transfer price and the pragmatic process of
negotiation. This fundamental approach was developed under the assumption that
the net average revenue curve for the final product is linear.
  In this paper, Tomkins' pragmatic-analytical model is further developed for
non-linear net average revenue curves. In particular, typical quadratic
functions are considered and corresponding transfer price schedules are
determined. A similar technique can be used for the transfer pricing problem
with any net average revenue curve.
