COST ACCOUNTING
RESPONSIBILITY ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Which of the following is false regarding transfer pricing?
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If no market price exists, the transfer price may be based on cost
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It measures exchanges between a company and its external customers
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If a market price exists, this price may be used as transfer price between segments
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it measures the value of goods or services furnished by one responsibility center to another
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Explanation:
Detailed explanation-1: -In short, transfer pricing refers to the amount of money that is exchanged when two or more related company entities transact with each other. 2.
Detailed explanation-2: -Transfer pricing allows for the establishment of prices for the goods and services exchanged between subsidiaries, affiliates, or commonly controlled companies that are part of the same larger enterprise. Transfer pricing can lead to tax savings for corporations, though tax authorities may contest their claims.
Detailed explanation-3: -The resale price method requires resale price margins to be comparable in order for an arm’s length price to be identified.
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