The transfer pricing method that uses either the variable cost or the full cost as the basis for setting the transfer price is the:
A)market-price method.
B)cost-based method.
C)negotiation.
D)balanced scorecard method.

Question

Quizplus · Accepted Answer

The cost-based method uses either the variable cost or the full cost as the basis for setting the transfer price. This method ensures that the selling division recovers its costs, and the buying division pays a fair price that covers its own costs and provides a reasonable profit margin. The other options, such as the market-price method, negotiation, or balanced scorecard method, do not necessarily consider costs and may not result in a fair transfer price.

The Transfer Pricing Method That Uses Either the Variable Cost