What transfer pricing mechanism generally applies a normal markup to costs as a surrogate for market prices when intermediate market prices are not available?
A)Fixed price-based transfer pricing
B)Full-absorption costing
C)Activity-based costing
D)Cost-plus transfer pricing

Question

Quizplus · Accepted Answer

Cost-plus transfer pricing generally involves adding a normal markup to costs to arrive at a transfer price when intermediate market prices are not available. This mechanism ensures that the selling division covers its costs and makes a profit, while also providing a reasonable transfer price to the buying division.

What Transfer Pricing Mechanism Generally Applies a Normal Markup to Costs