Which one of the following transfer pricing alternatives is based on determining an appropriate markup, where the markup is based on gross profits of unrelated firms selling similar products?
A) Wholesale-price method.
B) Resale-price method.
C) Net-price method.
D) Cost-plus method.
E) Comparable-price method.

Question

Quizplus · Accepted Answer

The Resale-price method is based on determining an appropriate markup, where the markup is based on gross profits of unrelated firms selling similar products. In this method, the price charged by the selling division to the buying division is based on the resale price of the product charged to the end customer, and the buying division earns its profit by subtracting its costs from the resale price. This method ensures that the transfer price is based on the market price and the selling division earns a fair return on its sales.

Which One of the Following Transfer Pricing Alternatives Is Based