One of the potential ways in which transfer pricing can be established is to use market-based prices, which is often considered an alternative to cost-based transfer prices. In market-based costing, internal transfer prices may be based upon the same pricing structure offered to external customers. Of the choices provided below, which is most likely to be indicative of a pricing system such as market-based transfer pricing?
A) The minimum price as established by the seller
B) Variable manufacturing cost
C) Variable manufacturing cost plus fixed manufacturing cost
D) Variable manufacturing cost plus fixed manufacturing cost plus mark-up

Question

Quizplus · Accepted Answer

This question requires familiarity with the continuum of market-based transfer prices. While all of the choices listed above seem like definite possibilities, it is only Choice D that is likely to be a possible market price as it appears on the continuum. The other choices contain elements of what could be included, but they are missing one or more crucial elements to make it complete.

One of the Potential Ways in Which Transfer Pricing Can