Cost-based transfer pricing is a better method when the products being transferred are specialized in nature.

Question

Quizplus · Accepted Answer

Cost-based transfer pricing is a better method for specialized products because it considers the actual cost incurred in producing the product, including direct and indirect costs. This ensures that the transfer price is fair and reflects the true cost of production. In contrast, market-based transfer pricing uses external market prices to determine the transfer price, which may not accurately reflect the cost of producing specialized products.

Cost-Based Transfer Pricing Is a Better Method When the Products