It is beneficial for two related companies to use the cost price approach for transfer pricing when both of the companies operate as cost centers and are not concerned with the revenue.

Question

Quizplus · Accepted Answer

When two related companies operate as cost centers and their focus is on minimizing costs, the cost price approach for transfer pricing makes sense as it ensures that the selling division recovers its costs while the buying division does not overpay for the goods or services it receives. The revenue is not the primary concern in such a scenario, so the cost price approach is appropriate.

It Is Beneficial for Two Related Companies to Use the Cost