Cost based Transfer Price

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This video discusses the use of cost-based transfer prices. • Companies may base the transfer price on the cost for the selling division to produce the intermediate product. The cost used may be the (1) variable cost, (2) full cost (variable cost plus the fixed cost), or (3) cost-plus (cost plus a markup). • Cost-based transfer prices are frequently used because they are easy to calculate and understand. However, the use of cost-based transfer pricing has several disadvantages. The use of full-cost transfer pricing may lead to suboptimal decisions when the selling division has excess capacity (it may result in too high a price being charged). Also, the use of a cost-based transfer price does not result in any profit being recognized by the selling division (unless cost-plus is used). This gives the selling division little incentive to control its costs.— • Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world. • — • SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • • A 44-PAGE GUIDE TO U.S. TAXATION • • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • • MANY MORE FREE PDF GUIDES AND SPREADSHEETS • http://eepurl.com/dIaa5z • — • SUPPORT EDSPIRA ON PATREON • * / prof_mclaughlin • — • GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT • https://edspira.thinkific.com • — • LISTEN TO THE SCHEME PODCAST • Apple Podcasts: https://podcasts.apple.com/us/podcast... • Spotify: https://open.spotify.com/show/4WaNTqV... • Website: https://www.edspira.com/podcast-2/ • — • GET TAX TIPS ON TIKTOK • / prof_mclaughlin • — • ACCESS INDEX OF VIDEOS • https://www.edspira.com/index • — • CONNECT WITH EDSPIRA • Facebook: / edspira • Instagram: / edspiradotcom • LinkedIn: / edspira • — • CONNECT WITH MICHAEL • Twitter: / prof_mclaughlin • LinkedIn: / prof-michael-mclaughlin • — • ABOUT EDSPIRA AND ITS CREATOR • https://www.edspira.com/about/ • https://michaelmclaughlin.com

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