In keeping with Internal Revenue Code,Clarence Company transfers goods to Marguerite Corporation,its foreign subsidiary,at the price Marguerite will sell the product to its customers,less the industry's average gross profit margin of 30%. What method of transfer pricing is Clarence using?

Question

Quizplus · Accepted Answer

Clarence Company is using the resale price method, whereby the transfer price is based on the price at which Marguerite will sell the product to its customers (resale price) minus the industry's average gross profit margin. This method is commonly used when the subsidiary is primarily a distributor and does not bear significant costs in the production of the goods.

In Keeping with Internal Revenue Code,Clarence Company Transfers Goods to Marguerite