Because the Full-Cost Method of Transfer Pricing Includes Fixed Cost

question 44

Multiple Choice

Because the full-cost method of transfer pricing includes fixed cost, it can:

• A) Pass strict accounting requirements for determining transfer prices.
• B) Pass current income tax requirements in the U.S. for determining transfer prices.
• C) Establish consistency across state and national borders.
• D) Violate OECD agreements.
• E) Cause sub-optimal short-term decision making.

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Definitions:

Budgeted Cost

An estimate of the financial expenditure for a particular operation, project, or production process over a set period.

Raw Materials

Basic substances or components that are processed or transformed into a finished product.

Credit Sales

Sales made by a business where the payment is deferred to a later date, typically involving issuing an invoice to the customer.

Finished Goods Inventory

The completed products that are ready to be sold but have not yet been sold to customers.