Question

why cost plus transfer pricing is preferred over market pricing .Elaborate minimum 700 words

Answer 1

Answer:

Transfer pricing is te setting of the price for goods and services sold between controlled (or related) entities within an enterprise. For example if a subsidiary company sells goods to a parent company, the cost of those goods paid by the parent to the subsidiary is transfer price.

Transfer pricing helps in reducing duty costs by shipping goods into countries with high tariff rates at minimal transfer prices so that the duty base of such transaction is fairly low.

The cost plus method is a traditional transaction method. The cost plus method compares gross profit to the cost of sales. Firstly, you determine the costs incurred by the supplier in a controlled transaction. An appropriate mark-up has to be added to this cost to acheive the correct transfer price.

The cost plus method can be helpful to assess the arm's length remuneration of low - risk, routine-like activities. An example of such activities is contract manufacturing, where there is manufacturing enterprise which contacts exclusively with one client and assumed limited risk.

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