One of the potential ways that transfer pricing can be established is to use market-based prices. This 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 cost-based transfer pricing?
A) Only fixed manufacturing costs
B) The maximum price established by the buyer
C) The minimum price established by the seller
D) Fixed manufacturing costs plus mark-up

Question

Quizplus · Accepted Answer

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

One of the Potential Ways That Transfer Pricing Can Be