Which of the following is not a method commonly used for establishing transfer prices? a. Cost-based transfer price. b. Negotiated price. c. Market-based transfer price. d. Industrywide transfer price.

Which of the following is not a method commonly used for establishing transfer prices?
a. Cost-based transfer price.
b. Negotiated price.
c. Market-based transfer price.
d. Industrywide transfer price.

Solutions

Expert Solution

There are various methods for calculating transfer price of related party transactions and other international transactions on which transfer price rule is applicable.

Cost based transfer price includes cost plus method and comparable profits methods. Both methods are used for determine the transfer price for related party transactions.

This option is incorrect

Negotiation price for the transactions between related parties is used to achieve purposes of performance evaluation. Performance evaluation is one of two main objectives of transfer price laws.

This option is incorrect.

Market based transfer price is also used to achieve the performance evaluation in the related party transactions.

This option is incorrect.

Industry wide transfer price is not commonly used for the determination of transfer prices. Since this method uses general price level which is prevailed in the industry. This method not gives the reliable transfer price. This option is correct.

Nabeel answered 1 year ago

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