Understand the Concepts of Cost-Based Transfer Price with Myhomeworkhelp.com
Determining the transfer price on the basis of certain cost is termed as cost-based transfer price. Under this method, only one division has to pay the cost of transfer. This impacts the firm in a good way and increases its profits.
The aim of divisions in respective to the transfer pricing is to act for their own growth and profit and takes into account their own cost and opportunities for the betterment of the company.
As there are many methods on the basis of which transfer pricing are set it is in the business to select the best method out of the all. To select that method which suits their business plans to reach their respective goals. Our manuals on cost-based transfer price homework help provide a deeper insight into the concept.
Aspects of this method:
This method is a very popular and common used by all the companies, but it has certain disadvantages on the earning of the entire firm in many ways.
Adverse effects on the customers:
It is very difficult to the manage loss of the firm occurring in a market. This scenario fails to engross the customers with the firm.
Adverse effect on the other divisions:
It increases the profit of one division at the cost of loss to other division.
Adverse impact on the managers:
Under this method, when one division is under loss, managers think to leave the firm for another as they are being treated as a supplier.
Pricing on different costs-
This is a case where cost is taken as fundamental to transfer pricing. However, with our cost-based transfer price homework help, you will get clarity of the concepts.
It consists of variable cost or total cost that includes fixed cost. Under this procedure, the actual or absolute production cost becomes the transfer price to be exchanged inter-divisionally.
Customary or standard cost-
Under this procedure, on the premise of standard cost transfer price is being fixed. The difference between the absolute or actual cost and the standard cost being in congruent is taken by transferring division. This involves an effortless and easy to follow that requires a constant updating of standards at systematic intervals.
In this method, measurement of profit becomes an easy process as a capital investment in addition to rational yield fixes the transfer price. The manuals as cost-based transfer price assignment help will help you with a detailed idea.
Under this procedure, transfer price is decided on the grounds of marginal cost because fixed cost cannot be avoided in any case and thereby, it should not be added to the division that buys.
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