Define cost-based transfer price. When should cost-based transfer pricing be used? Explain your answer
What will be an ideal response
Cost-based transfer price is a transfer price based on the cost of producing the goods. This price could be the variable cost, the full cost including the variable cost and the fixed cost, or the cost plus a markup. It is used when the division is operating below capacity. Because sales cannot be made to customers outside the company, managers can negotiate a transfer price that is satisfactory to both divisions. There is capacity available to produce goods for other divisions.
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Which method would serve to reduce the information distortion in a supply chain consisting of a fabricator, manufacturer, supplier, and a retailer?
A) Make both the fabricator and retailer responsible for all decisions regarding product inventories at the retailer. B) Make the manufacturer responsible for all decisions regarding product inventories at the retailer. C) Make the supplier responsible for all decisions regarding product inventories at the retailer. D) Make the customer responsible for all decisions regarding product inventories at the retailer.
The manufacturer is the most powerful part of the value chain because it adds more value than the other parts
Indicate whether the statement is true or false.