One advantage of prorating the difference between a maximum and minimum transfer price of a product to be moved between divisions is that it saves the cost of objective audits of transfer pricing.

Question

Quizplus · Accepted Answer

Just the opposite is true. Proration methods require a high degree of trust and an exchange of information among divisions or objective audits of cost information to have long-run success.

One Advantage of Prorating the Difference Between a Maximum and Minimum